Cocoa Prices Undercut by Dollar Strength

March ICE NY cocoa (CCH23) on Friday closed down -22 (-0.81%), and March ICE London cocoa #7 (CAH23) closed down -1 (-0.14%).

Cocoa prices Friday posted moderate losses, with NY cocoa falling to a 1-week low.   Friday's rally in the dollar index (DXY00) to a 1-1/2 month high sparked long liquidation pressure in cocoa futures.  

Cocoa also has carry-over support from recent reports that some Ivory Coast cocoa exporters are close to defaulting on their contracts due to a lack of cocoa beans, with some shortage estimates as high as 150,000 tons.  According to Reuters, with more cocoa grinding being done locally in the Ivory Coast, not enough cocoa beans are available to satisfy exporters' contracts.  

On the bearish side, Ivory Coast's cocoa regulator said Wednesday it would restrict some multinational traders from additional cocoa bean purchases for exports.  Le Conseil Cafe-Cacao, the Ivory Coast's cocoa regulator, said it blocked Barry Callebaut and Cargill from buying additional cocoa beans after both companies reached the amounts stipulated in their current contracts.  

Ample supplies from the Ivory Coast are bearish for cocoa prices.  Monday's government data showed that Ivory Coast farmers sent a cumulative 1.68 MMT MT of cocoa to Ivory Coast ports for the 2022/23 marketing year from October 1 through February 19, up +1.2% y/y.  

Cocoa prices found support when Gepex, a cocoa exporter group that includes six of the world's biggest cocoa grinders, reported last Monday that it processed 58,554 tons of cocoa in December, up +13% y/y.

Cocoa prices have seen support from concern about the quality of some West African cocoa crops.  Cocoa farmers continue to struggle with the lack of fertilizer and pesticides as the war in Ukraine has limited Russian exports of potash and other fertilizers worldwide.

Tighter cocoa inventories are supportive of prices.  ICE-monitored NY cocoa inventories held in U.S. ports are moderately above the 9-3/4 month low from January 3.  Also, ICE-monitored cocoa stockpiles held in EU ports fell to a 10-1/4 month low last Monday of 112,820 MT.  

On the positive side for cocoa are smaller cocoa exports from Nigeria after the Cocoa Association of Nigeria reported on January 24 that Nigeria's Dec cocoa exports fell -0.7% m/m and -73% y/y to 36,571 MT.  Nigeria is the world's fifth-largest cocoa bean producer.

Global cocoa demand is tepid and is a negative factor for prices.  On January 19, the National Confectioners Association reported that Q4 North American cocoa grindings fell -8.1% y/y to 107,130 MT.  Also, the European Cocoa Association reported on January 19 that European Q4 cocoa grindings fell -1.7% y/y to 359,577 MT.  On January 18, the Cocoa Association of Asia reported that Asia Q4 cocoa grindings fell -0.2% y/y to 230,806 MT.  

The quarterly report from the ICCO on December 1 was bullish for cocoa prices after ICCO said global 2021/22 cocoa production fell -8.0% y/y to 4.823 MMT as unfavorable weather and disease hampered cocoa yields.  ICCO revised its 2021/22 global cocoa production figure downward by -419,000 MT from the September figure.  ICCO also raised the 2021/22 global cocoa deficit to -306,000 MT from a Sep forecast of -230,000 MT.  In 2020/21, global cocoa production rose to a record 5.242 MMT, and the global cocoa market was in a surplus of +209,000 MT.

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