March ICE NY cocoa (CCH25) Friday closed down -357 (-3.27%), and March ICE London cocoa #7 (CAH25) closed down -224 (-2.54%).
Cocoa prices Friday fell sharply lower as a rally in the dollar index (DXY00) to a 2-year high sparked long liquidation pressure in cocoa futures. Losses in London cocoa were limited Friday after the British pound (^GBPUSD) sank to a 14-month low, boosting cocoa that is priced in terms of sterling.
Cocoa prices have been volatile this week. On Thursday, cocoa surged after chocolate maker Hershey Co said it sought CFTC approval to buy a large amount of cocoa through the ICE Futures Exchange due to tight global supplies. Bloomberg reported late Wednesday that Hershey wants to take a position allowing it to purchase more than 90,000 MT of cocoa on ICE Futures US. The purchase size is more than nine times what the exchange currently allows. The amount also exceeds a federal position limit of 4,900 contracts, or 49,000 MT, set by the CFTC. Global cocoa shortages are so large that it’s now cheaper to take delivery of supplies through the New York exchange than buying in the physical market.
Shrinking global cocoa stockpiles are bullish for prices. ICE-monitored cocoa inventories held in US ports have been trending lower for the past 1-1/2 years and fell to a 20-year low Friday of 1,315,922 bags.
On Wednesday, cocoa prices fell to 1-week lows on long liquidation when ICE Futures Europe, in an attempt to curb market volatility, tightened the London cocoa accountability levels that will require traders to disclose more information about their positions if they exceed certain levels starting January 13.
On Monday, cocoa prices climbed to 2-week highs on concern slowing Ivory Coast cocoa exports will tighten global supplies. While government data shows Ivory Coast farmers shipped 1.11 MMT of cocoa to ports so far this marketing year, up more than +27% from last year, the pace has narrowed from the 35% rise seen last month.
Crop production concerns in West Africa are also supporting cocoa prices after some Ivory Coast and Nigerian cocoa farmers this week reported that cocoa trees are beginning to suffer the effects of the seasonal dry and dusty Harmattan winds, with leaves turning yellow and the cherelles (cocoa pods) withering.
On December 18, NY Cocoa posted an all-time nearest-futures high, and London Cocoa posted an 8-1/2 month nearest-futures high on the deterioration of the West African cocoa mid-crop outlook. Maxar Technologies warned that dry conditions in West Africa will hurt the early development of the mid-year cocoa crop harvested in April and that the arrival of the seasonal Harmattan winds could worsen the situation.
In a bullish factor, the International Cocoa Association (ICCO) on November 22 raised its 2023/24 global cocoa deficit estimate to -478,000 MT from May’s -462,000 MT, the largest deficit in over 60 years. ICCO also cut its 2023/24 cocoa production estimate to 4.380 MMT from May’s 4.461 MMT, down -13.1% y/y. ICCO projected a 2023/24 global cocoa stocks/grindings ratio of 27.0%, a 46-year low.
Heavy rain in West Africa has led to reports of high mortality rates of cocoa buds on trees and pushed cocoa prices sharply higher. Heavy rain in the Ivory Coast has also flooded fields, increased disease risk, and affected crop quality. Recently harvested cocoa beans from the Ivory Coast signal lower quality, with counts of about 105 beans per 100 grams. The Ivory Coast cocoa regulator allows exporters to buy bean counts of 80 to 100 or slightly more for every 100 grams, with the best quality cocoa having the lower count.
Stronger cocoa exports from Nigeria, the world’s sixth-largest producer, are also bearish for prices. Nigeria’s Nov cocoa exports rose +35% y/y to 38,015 MT.
On the negative side, the Ivory Coast regulator Le Conseil Cafe-Cacao on October 18 raised its Ivory Coast 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT from a June forecast of 2.0 MMT.
Recent global cocoa demand news was mixed. The National Confectioners Association on October 17 reported that North American Q3 cocoa grindings rose +12% y/y to 109,264 MT. Also, the Cocoa Association of Asia reported that Q3 Asian cocoa grinding rose +2.6% y/y to 216,998 MT. However, the European Cocoa Association reported that European Q3 cocoa grindings fell -3.3% y/y to 354,335 MT.
Cocoa found support after Ghana’s Cocoa Board (Cocobod) on August 20 cut its 2024/25 Ghana cocoa production estimate to 650,000 MT from a June forecast of 700,000 MT. Due to bad weather and crop disease, Ghana’s 2023/24 coca harvest sank to a 23-year low of 425,000 MT. Ghana is the world’s second-biggest cocoa producer.
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