Cocoa Posts Moderate Losses on Demand Concerns and Dollar Strength

May ICE NY cocoa (CCK22) on Tuesday closed down -8 (-0.32%), and May ICE London cocoa #7 (CAK22) closed down -7 (-0.41%).

Cocoa prices Tuesday extended Monday's losses, with NY cocoa posting a 1-3/4 month low and London cocoa posting a 2-1/2 month low.  Cocoa prices are under pressure on concern Russia's invasion of Ukraine will curb air travel throughout Western Europe and curb chocolate demand at airports, a significant source of chocolate sales.  In addition, a stronger dollar Tuesday also pressured cocoa prices.

Ample cocoa supplies from the Ivory Coast are bearish for prices after the Ivory Coast government reported last Monday that Ivory Coast cocoa farmers sent a cumulative 1.66 MMT of cocoa to Ivory Coast ports from Oct 1-Feb 20, up +1.8% y/y.

Optimism that an easing of Covid infections will boost chocolate demand as pandemic restrictions are lifted is supportive of cocoa prices.  The 7-day average of new U.S. Covid infections fell to a 7-month low last Friday of 65,933, which may ease travel restrictions and boost chocolate demand as more travelers flock to airports, a significant source of chocolate sales.

On Feb 10, cocoa prices climbed to 4-1/2 month nearest-futures highs on concern that 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 had reported inadequate soil moisture due to the Harmattan winds and a lack of rain.  

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 Feb 3 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, on Feb 2, 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.  

A decline in cocoa exports from Nigeria, the world's fifth-largest cocoa producer, is bullish for prices after Nigeria Jan cocoa exports fell -8% y/y to 46,142 MT.

Tighter cocoa inventories 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 a record 1.05 MMT for the 2020/21 crop.

On Monday, the International Cocoa Organization (ICCO) projected that global 2021/22 cocoa production would fall -5.2% y/y to 4.955 MMT from a record 5.226 MMT in 2020/21.  The ICO also estimates the global 2021/22 cocoa market will fall into a deficit of -181,000 MT from a surplus of +215,000 in 2020/21.