Cocoa Sees Continued Strength on Lack of Fertilizer

September ICE NY cocoa (CCU22) on Tuesday closed up +23 (+0.98%), and September ICE London cocoa #7 (CAU22) closed up +18 (+1.06%).

Cocoa prices saw continued support from concern about lower cocoa production in West Africa due to a lack of fertilizer.  However, recent weather in cocoa-growing areas in West Africa has been generally favorable.

The Ivory Coast government reported Tuesday that Ivory Coast cocoa farmers sent a cumulative 2.390 MMT of cocoa to Ivory Coast ports from Oct 1-Aug 7, up +0.4% y/y.

In a bearish factor, cocoa stocks held in ICE-monitored port warehouses on Tuesday rose by 29,875 bags (+0.5%) to a 2-month high of 5,663,389 bags from Tuesday's level.

In a bullish factor, Ghana reported July 27 that its 2021/22 cocoa crop fell by -35% y/y to 685,000 MT, the smallest crop in 12 years, due to drought and swollen shoot virus.  Ghana is the world's second-largest cocoa producer.  However, the Ghana Cocoa Board estimates 2022/23 Ghana cocoa production will rebound +31% y/y to 850,000 MT.

Global cocoa demand for Q2 has been mixed.  The Cocoa Association of Asia (CCA) reported July 22 that Q2 Asia cocoa grindings rose +3.6% y/y to 228,895 MT, a new record for the quarter and the second-highest grind in the history of the CCA.  Conversely, the European Cocoa Association on July 20 reported that European Q2 cocoa grindings fell -2.5% q/q to 364,081 MT.  The National Confectioners Association on July 22 reported that Q2 North American cocoa grindings fell -6.3% y/y to 115,899 MT.

Recent reports on chocolate demand have also been mixed.  Researcher IRI reported July 14 that the volume of chocolate products sold in the U.S. dropped -1.5% y/y in the 13 weeks ended June 12.  However, Barry Callebaut, the world's leading manufacturer of chocolate and cocoa products, reported last Wednesday that its global chocolate sales grew +9.1% in the first nine months of the fiscal year 2021/22 ended May 31.  

In a bullish factor, the International Cocoa Organization (ICCO) 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.

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 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.

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