Cocoa Prices Firm on Dollar Weakness

May ICE NY cocoa (CCK22) on Wednesday closed up +27 (+1.02%), and May ICE London cocoa #7 (CAK22) closed up +6 (+0.34%).

Cocoa prices Wednesday closed moderately higher.  A weaker dollar Wednesday sparked some short-covering in cocoa futures.  Signs of stronger global cocoa demand are also supportive for prices after Monday's data from Gepex, a cocoa exporter group that includes six of the world's biggest cocoa grinders, showed Gepex Feb cocoa processing rose +8.7% y/y to 50,699 MT.  

Signs of ample cocoa supplies from the Ivory Coast may limit the upside in cocoa prices.  The Ivory Coast government reported Monday that Ivory Coast cocoa farmers sent a cumulative 1.74 MMT of cocoa to Ivory Coast ports from Oct 1-March 6, up +3.0% y/y.

Last 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.  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.

Cocoa prices are seeing underlying support from optimism that easing Covid infections will boost chocolate demand as pandemic restrictions are lifted.  The 7-day average of new U.S. Covid infections fell to a 7-1/2 month low Tuesday of 39,664, which may ease travel restrictions and boost chocolate demand as more travelers flock to airports, a significant source of chocolate sales.

Last week, cocoa prices were on the defensive as NY cocoa last Tuesday fell to a 2-month low, and London cocoa dropped to a 2-1/2 month low 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.

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.

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.

Tighter cocoa inventories support prices after ICE-monitored U.S. cocoa inventories fell to an 11-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 an 11-month low Jan 25.