London Cocoa Rallies on Weakness in the British Pound

December ICE NY cocoa (CCZ22) on Tuesday closed down -2 (-0.08%), and December ICE London cocoa #7 (CAZ22) closed up +16 (+0.87%).

Cocoa prices Tuesday settled mixed with London cocoa climbing to a 3-1/2 month high.  NY cocoa Tuesday was weighed down from Monday's data that showed ample global cocoa supplies.  London cocoa Tuesday rose on weakness in the British pound.  The pound (^GBPUSD) sank to a 2-1/4 year low Tuesday, boosting cocoa that is priced in sterling.  

Ample cocoa supplies are negative for prices.  The Ivory Coast government Monday reported that Ivory Coast cocoa farmers sent a cumulative 2.42 MMT of cocoa to Ivory Coast ports from Oct 1-Aug 28, up +0.4% y/y.  Also, Nigeria, the world's fifth largest cocoa producer, reported Monday that its July cocoa bean exports rose +2% y/y to 15,490 MT.

Concern about next year's West African cocoa-crop quality is supportive of prices.  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 worldwide.

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.

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.

Global cocoa demand for Q2 has been mixed.  The Cocoa Association of Asia (CCA) reported on 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 on 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.  

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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