Cocoa Prices Consolidate Below Last Friday's Significant Highs

March ICE NY cocoa (CCH24) on Monday closed -18 (-0.39%), and Mar ICE London cocoa #7 (CAH24) closed -32 (-0.85%).

Cocoa prices on Monday posted moderate losses as they consolidated just below last Friday's significant highs.

Tight global cocoa supplies support a parabolic rally in cocoa, as NY cocoa posted a 46-year nearest-futures high last Friday, and London cocoa posted an all-time high.  The Ivory Coast government reported Monday that Ivory Coast farmers shipped 951,710 MT of cocoa to ports from October 1 to January 21, down -37% from the same time last year.  The Ivory Coast is the world's largest cocoa producer.

Unfavorable growing conditions and crop disease on West African farms over the past year have curbed cocoa production and fueled a scorching rally in cocoa prices.  It has also stoked concern that current cocoa production cannot replenish supplies to avoid a global deficit.  According to Maxar Technologies, the total precipitation in West Africa since the rainy season started May 1 has been more than double the 30-year average.

The outlook for continued tight cocoa supplies is bullish for prices.  On December 1, the Ivory Coast's regulator halted forward sales for the 2023-24 Ivory Coast mid-crop, which starts April 1, 2024, so the nation's production forecast can be reviewed.  The halt adds to the tumult of the region's cocoa supplies, and the impact could multiply if the halt extends into the next season.

Also, on the bullish side, ICE-monitored cocoa inventories held in U.S. ports posted a 2-3/4 year low of 4,100,035 bags on January 12.

Concern about lower cocoa production in Ghana, the world's second-largest producer, is bullish for cocoa prices.  Ghana's cocoa regulator said on August 16 that some of its cocoa farmers are unlikely to fulfill some of their cocoa contracts for a second season.  Ghana's regulator postponed 44,000 MT of cocoa shipments to future seasons due to a lack of supplies.  Ghana's 2022/23 cocoa crop is now expected to be around 683,000 MT, a 13-year low and 24% below initial estimates of 850,000 MT, as a lack of fertilizers and black pod disease hurt cocoa yields.  

Cocoa prices remain supported by concern that an El Nino weather event could undercut global cocoa production.  Cocoa prices rallied to 12-year highs in 2016 after an El Nino weather event caused a drought that hampered global cocoa production.

Near-record cocoa prices are starting to curb global demand.  Last Thursday, the National Confectioners Association reported that 4Q North American cocoa grindings fell -3.0% y/y to 103,971 MT.  Also, the Cocoa Association of Asia reported that Asian Q4 cocoa grindings fell -8.5% y/y to 211,202 MT.  Finally, the European Cocoa Association reported that European Q4 cocoa grindings fell -2.5% y/y to 350,739 MT.

The International Cocoa Organization (ICCO) reported that global 2022/23 cocoa production increased +2.4% y/y to 4.938 MMT, and global cocoa grindings increased +0.2% y/y to 5.005 MMT.  ICCO estimated end-of-season 2022/23 global cocoa stocks at 1.707 MMT and the cocoa stocks-to-grinding ratio at a 7-year low of 34.5%.  ICCO estimated the global cocoa deficit for 2022/23 at -99,000 MT.

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