Cocoa Prices Under Pressure on Demand Concerns

December ICE NY cocoa (CCZ22) on Wednesday closed down -18 (-0.78%), and December ICE London cocoa #7 (CAZ22) closed down -31 (-1.61%).

Cocoa prices Wednesday retreated for a second session and posted 4-week lows.  Cocoa prices are under pressure on concerns that rising global inflation will prompt consumers to cut back on discretionary spending, including chocolate purchases.

Losses in London cocoa accelerated Wednesday after GBP/USD (^GBPUSD) rallied to a 6-week high.  Strength in the British Pound undercuts cocoa priced in sterling.

An excessive long position by funds in London cocoa may contribute to liquidation pressures.  Last Friday's weekly Commitment of Traders (COT) data showed funds increased their net-long positions in London cocoa by +1,608 in the week ended October 18 to a 2-year high of 57,166.

Global cocoa demand has been mixed.  The National Confectioners Association last Friday reported North American Q3 cocoa grindings fell -3.4% y/y to 119,244 MT.  Also, the European Cocoa Association on Oct 13 reported that European Q3 cocoa grindings fell -1.6% y/y to 369,679 MT, the first y/y decline since Q1 of 2021.  Conversely, the Cocoa Association of Asia said Asia Q3 cocoa grindings rose +9.5% y/y to 231,080 MT.  Also, exporter group Gepex, which includes six of the world's biggest cocoa grinding companies, reported Q3 Ivory Coast cocoa grindings rose +18.1% y/y to 171.540 MT.

Harvest pressures are weighing on cocoa prices as beneficial weather in West Africa has allowed cocoa farmers in the Ivory Coast and Ghana to harvest and dry beans.  The 2022/23 cocoa season began on October 1.

Delays in the transportation of cocoa supplies from farms to ports in the Ivory Coast due to heavy rain are a near-term supportive factor for cocoa prices.  The Ivory Coast government reported Monday that Ivory Coast cocoa farmers sent a cumulative 203,989 MT of cocoa to Ivory Coast ports for the 2022/23 season (Oct-1-Oct 23), down -26.3% from the same time last year.  

A lack of fertilizer for cocoa farmers in West Africa supports cocoa prices as it 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.

Smaller supplies from Nigeria, the world's fifth biggest cocoa producer, are bullish for cocoa prices after Nigeria reported on September 29 that its Aug cocoa bean exports tumbled -48% y/y to 10,823 MT.

Cocoa prices found support when the International Cocoa Organization (ICCO) on September 1 cut its 2021/22 global cocoa production estimate to 4.890 MMT from a June forecast of 4.923 MMT and raised its 2021/22 global cocoa deficit estimate to -230,000 MT from a June forecast of -174,000 MT.  In 2020/21, global cocoa production rose to a record 5.24 MMT, and in 2020/21, the global cocoa market was in a surplus of +215,000 MT.

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.
 

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