Cocoa Prices Surge on Crop Concerns in West Africa

March ICE NY cocoa (CCH22) on Wednesday closed up +87 (+3.26%), and March ICE London cocoa #7 (CAH22) closed up +36 (+2.05%).

Cocoa prices Wednesday rallied sharply, with NY cocoa posting a 4-month nearest-futures high and London cocoa posting a 3-3/4 month high.  Cocoa prices are climbing on concern the seasonal Harmattan winds in West Africa will dry out cocoa crops and reduce cocoa mid-crop output in the Ivory Coast and Ghana.  Some cocoa farmers in the Ivory Coast and Ghana have reported inadequate soil moisture due to the Harmattan winds and a lack of rain.  

An improvement in the pandemic is also supportive of cocoa prices.  The 7-day average of new U.S. Covid infections fell to a 1-1/2 month low Tuesday of 234,941, which may ease travel restrictions and boost chocolate demand as more travelers flock to airports, a significant source of chocolate sales.

Ample cocoa supplies from the Ivory Coast weigh on prices after the Ivory Coast government reported Monday that Ivory Coast cocoa farmers sent a cumulative 1.53 MMT of cocoa to Ivory Coast ports from Oct 1-Feb 6, up +0.7% y/y.

Recent data shows improved U.S. chocolate demand as data from researcher IRI shows U.S. retail chocolate sales in Q4 rose +5% y/y.  

Global cocoa demand in Q4 was mixed.  The National Confectioners Association reported last Thursday that North American Q4 cocoa grindings unexpectedly fell -1.2% y/y to 116,614 MT, much weaker than expectations of a +4.6% y/y increase.  Conversely, last Wednesday, the European Cocoa Association reported Q4 European cocoa processing rose +6.3% y/y to 365,826 MT, stronger than expectations of +6.0% y/y.  Total 2021 European cocoa processing rose +6.1% y/y to 1.46 MMT, the highest since 1999.  Also, Asia Q4 cocoa grindings rose +6.3% y/y to 231,309 MT, stronger than expectations of +2.3% y/y.  

Increased cocoa exports from Nigeria, the world's fifth-largest cocoa producer, are bearish for prices after Nigeria Dec cocoa exports surged +190% y/y to 134,227 MT.

Tighter cocoa supplies support prices after ICE-monitored U.S. cocoa inventories fell to a 9-1/2 month low Jan 27, 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 a 9-1/2 month low Jan 25.

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.

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.