Sep ICE NY cocoa (CCU23) on Wednesday closed +7 (+0.21%), and Sep ICE London cocoa #7 (CAU23) closed -35 (-1.34%).
Cocoa prices Wednesday settled mixed, with London cocoa falling to a 1-1/2 week low. A slump in the dollar index (DXY00) Wednesday to a 14-1/2 month low gave NY cocoa futures a boost. Meanwhile, a rally in the British pound (^GBPUSD) to a 14-1/2 month high weighed on London cocoa futures.
Sep NY cocoa prices rallied to a contract high last Monday, and nearest-futures cocoa (CCN23) posted a 7-1/2 year high. Last Tuesday, Sep London cocoa climbed to a contract high, and nearest-futures (CAN23) posted a record high (data from 1989). Cocoa prices have moved higher over the past month due to the recent heavy rain in West Africa that has accelerated the spread of black pod disease, which causes cocoa pods to turn black and rot. The spread of the disease from the extreme wet weather could result in lower cocoa crop quality and production.
The wet conditions in West Africa have also slowed down the mid-crop harvest and truck shipments in the Ivory Coast. Ivory Coast farmers shipped 2.27 MMT of cocoa from Oct 1-July 9, down -2.2% y/y. The Ivory Coast is the largest cocoa producer in the world.
An excessively long position by funds in NY cocoa futures could fuel any long liquidation pressures. Last Friday's weekly Commitment of Traders (COT) data showed funds boosted their net-long NY cocoa positions by 4,579 contracts in the week ending July 4 to a 3-year high of 75,267 contracts.
Cocoa prices have support from concern that an El Nino weather event could undercut global cocoa production. On June 8, the U.S. Climate Prediction Center said that sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees Celsius above normal, and wind patterns have changed to the point where El Nino criteria have been met. Cocoa prices rallied to 12-year highs in 2016 after an El Nino weather event caused a drought that hampered global cocoa production.
An increase in London cocoa inventories is bearish for prices. Certified cocoa stockpiles held in European port warehouses monitored by the ICE Futures Europe exchange rose 2,450 MT Tuesday to a record 170,860 MT (data from 2020).
Signs of stronger global cocoa demand are bullish for prices. On April 21, the National Confectioners Association reported Q1 North American cocoa grindings rose +2.4% m/m but fell -4.4% y/y to 109,666 MT. On April 20, the Cocoa Association of Asia reported that Q1 Asia cocoa grindings rose +4.09% y/y to 222,028 MT. On April 13, the European Cocoa Association reported that European Q1 cocoa grindings rose +0.5% y/y to 375,375 MT, the highest for a Q1 since 1999. On April 19, a cocoa exporter group that includes six of the world's biggest cocoa grinders reported that its Q1 cocoa processing jumped +22% y/y to 189,405 MT.
Chocolate demand is strong and is supportive of prices. According to Nielsen data, for the 52 weeks that ended May 27, dollar sales of chocolate are up about 10% from the year-earlier period. Also, researcher Euromonitor projects 2023 global chocolate confectionary sales will climb +5.8% this year to nearly $26 billion.
Larger cocoa supplies from Nigeria are bearish for cocoa prices after the June 27 news that Nigeria's May cocoa exports rose +65% y/y to 20,675 tons. Nigeria is the world's fifth-largest cocoa bean producer.
The International Cocoa Organization (ICCO) forecasts a global cocoa deficit for 2022/23 of -146,000 tons. ICCO said, "The expectation of a supply deficit has been compounded with weather variations, especially in West Africa."
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
