Cocoa Prices Firm on Pre-Weekend Short Covering

July ICE NY cocoa (CCN22) on Friday closed up +58 (+2.49%), and July ICE London cocoa #7 (CAN22) closed up +34 (+2.01%).

Cocoa prices Friday settled moderately higher on pre-weekend short covering.  Cocoa prices have been under pressure this week, with NY cocoa falling to a 10-3/4 month low Wednesday and London cocoa falling to a 5-week low Thursday on concern that rising inflation will curb chocolate demand.  The International Cocoa Organization on Thursday released a report that said "rising inflation could restrain the consumption of non-essentials and luxury goods including cocoa products should the situation persist."  

Signs of ample cocoa supplies are bearish for prices after ICE cocoa inventories last Thursday rose to a 10-1/2 month high of 5.817 mln bags.

In a bullish factor, the Ivory Coast government reported Monday that Ivory Coast cocoa farmers sent a cumulative 2.218 MMT of cocoa to Ivory Coast ports from Oct 1-Jun 12, down -1.8% y/y.

In another bullish factor, the International Cocoa Organization (ICCO) on June 1 said that weather conditions and disease are negatively affecting cocoa production this year.  Also, trade disruptions and high freight rates are impacting the cocoa and fertilizer trade.  ICCO said the shortage of fertilizers on cocoa farms would likely hurt cocoa bean crop quantity, quality, and size next year.

A decline in cocoa supplies from Nigeria, the world's fourth-largest cocoa producer, is supportive of cocoa prices after May 26 data showed Nigeria's Apr cocoa exports fell -61% y/y to 12,497 MT.

Demand concerns are weighing on cocoa prices after the North American Confectioners Association reported on Apr 22 that Q1 North American cocoa grindings fell -2.8% y/y to 114,694 MT.  Also, the Cocoa Association of Asia reported Asian Q1 cocoa grindings fell -0.25% y/y to 213,313 MT.  On the supportive side, however, the European Cocoa Association reported Apr 14 that Q1 European cocoa grindings rose +4.4% y/y to 373,498 tons, the most in more than a decade.  

On Feb 28, the International Cocoa Organization (ICCO) projected that global 2021/22 cocoa production would fall -by 5.2% y/y to 4.955 MMT from a record 5.226 MMT in 2020/21.  ICCO 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.

Big Picture Cocoa Market Factors: World cocoa production in 2021/22 (Oct/Sep) will fall -5.2% y/y to 4.955 MMT, and global 2021/22 cocoa grindings will rise +2.4% y/y to 5.05 MMT (ICCO).  ICCO forecasts a global 2021/22 cocoa deficit -174,000 MT from a +215,000 MT surplus in 2021/21.  The 2020/21 stocks/grindings ratio will shrink 34.3% from 38.9% in 2020/21.  Ivory Coast 2019/20 cocoa production (main crop Oct-Mar; mid-crop May-Aug) rose +1.2% y/y to 2.18 MMT, while Ghana 2019/20 cocoa production (main crop Sep-Mar; mid-crop May Aug) rose +2.3% y/y to 850,00 MMT (ICCO).

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