Cocoa Prices Push Higher on Demand Optimism

March ICE NY cocoa (CCH22) on Thursday closed up +50 (+1.95%), and March ICE London cocoa #7 (CAH22) closed up +26 (+1.52%).

Cocoa prices on Thursday settled moderately higher, with NY cocoa posting a 1-month nearest-futures high and London cocoa posting a 2-1/2 month nearest-futures high.  Demand optimism is underpinning cocoa prices after the Malaysia Cocoa Board on Thursday reported Malaysia Q4 cocoa processing rose +16.5% y/y to 101,544 MT.  Grinding data is expected from Asia on Friday, followed by European and North America data next week.

Cocoa prices were already on the upswing on signs of stronger demand amid smaller supplies.  Gepex, an exporter group that includes six of the biggest cocoa grinders, reported Tuesday that its Dec cocoa processing rose +1.7% y/y to 51,786 MT.  Cocoa supplies are tighter after the Ivory Coast government reported Tuesday that Ivory Coast cocoa farmers sent a cumulative 1.21 MMT of cocoa to Ivory Coast ports from Oct 1-Jan 9, down -4.7% from the same time last year.

Signs of strong U.S. chocolate demand are bullish for cocoa prices.  Data from researcher IRI shows U.S. retail chocolate sales in Q4 rose +5% y/y.  The growing evidence that the omicron Covid variant is causing milder symptoms is bolstering optimism that air travel will soon recover, which could boost cocoa consumption as people buy more chocolate at airports.

Last Thursday, cocoa prices tumbled to a 1-month low as unseasonal rain in the Ivory Coast, the world's biggest cocoa producer, may boost cocoa crop yields that lead to a bumper cocoa crop.  January is usually dry in West Africa as the seasonal Harmattan winds set in.  Cocoa prices have recently been undercut by ideal growing conditions in West Africa.  Recent surveys show cocoa farmers in the Ivory Coast and Ghana are optimistic about their crops as ideal weather and adequate rain in West Africa should boost the yields of the West African cocoa mid-crop, the smaller of two annual crops harvested in the first half of this year.

The outlook for a smaller cocoa crop in Ghana is bullish for prices after the Ghana Cocoa Board on Oct 6 projected a Ghana 2021/22 cocoa harvest of 950,000 MT, down -5.6% y/y from 1.06 MMT projected for the 2020/21 crop.

Tighter cocoa supplies support prices after ICE-monitored U.S. cocoa inventories Wednesday fell to a 9-month low, down from the record high of 5.86 mln bags (data from 1999) posted on June 30.  Also, ICE-monitored EU cocoa inventories fell to an 8-1/2 month low Tuesday.

On Aug 31, the International Cocoa Organization (ICCO) raised its global 2020/21 cocoa production estimate to a record 5.14 MMT from a previous estimate of 5.02 MMT, and on Tuesday cut its global 2020/21 cocoa surplus estimate to 212,000 MT from a previous estimate of 230,000 MT.

Recent demand statistics were bearish for cocoa prices.  On Oct 15, Q3 Asian cocoa grindings were reported up +4.1% y/y to 210,970 MT, below expectations of +5.5% y/y.  On Oct 14, the North American Confectioners Association reported Q3 North American cocoa grindings rose +4.3% y/y to 123,399 MT, below expectations of +6.6% y/y.  Conversely, the European Cocoa Association reported Oct 13 that European Q3 cocoa processing rose +8.7% y/y to 375,811 MT, above the consensus of +5.8% y/y.