Cocoa Prices Retreat on Dollar Strength

September ICE NY cocoa (CCU22) on Friday closed down -49 (-1.67%), and September ICE London cocoa #7 (CAU22) closed down -6 (-0.34%).

Cocoa prices Friday posted moderate losses as a rally in the dollar index (DXY00) to a 5-week high weighed on most commodities, including cocoa.  Losses in London cocoa were limited after the British Pound (^GBPUSD) Friday dropped to a 5-week low against the dollar.  A weaker pound boosts cocoa priced in sterling.  

Cocoa prices Thursday posted a 2-1/2 month nearest-futures high on technical short-covering.  An extreme short position by funds in NY cocoa futures may fuel any short-covering rally.  Last Friday's weekly COT data showed funds boosted their short position in NY cocoa futures by 138 in the week ending Aug 9 to 31,522 short positions, the most in about three years.

Cocoa prices Tuesday fell to 1-week lows on ample cocoa supplies from the Ivory Coast after the Ivory Coast government reported that Ivory Coast cocoa farmers sent a cumulative 2.4 MMT of cocoa to Ivory Coast ports from Oct 1-Aug 14, up +0.4% y/y.

A lack of fertilizer for cocoa farmers in West Africa risks undercutting next year's cocoa yields in the Ivory Coast and Ghana.  The war in Ukraine has limited Russian exports of potash and other fertilizers throughout the world.  

In another bearish factor, cocoa stocks held in ICE-monitored port warehouses on Monday rose to a 2-1/4 month high of 5,751,961 bags.

In a bullish factor, Ghana reported on 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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