Dollar Strength Weighs on Cocoa Prices

March ICE NY cocoa (CCH24) on Wednesday closed -37 (-0.87%), and Mar ICE London cocoa #7 (CAH24) closed -20 (-0.56%).

Cocoa prices on Wednesday closed lower as a rally in the dollar index to a 2-1/2 week high sparked long liquidation in cocoa futures.

News of reduced cocoa output in the Ivory Coast is supportive of cocoa prices after the Ivory Coast government Tuesday reported Ivory Coast farmers shipped 824,730 MT of cocoa to ports from October 1-December 31, down -34% from the same time last year.  The Ivory Coast is the world's largest cocoa producer.

On November 30, nearest-futures (CCZ23) cocoa posted a 46-year high as continuous rain limited fieldwork and encouraged crop disease on West African farms, which provide most of the world's cocoa supply.  It has also stoked concern that current cocoa production cannot replenish supplies to avoid a global deficit.  According to Maxar Technologies, the total precipitation in West Africa since the rainy season started May 1 has been more than double the 30-year average.

The outlook for continued tight cocoa supplies is bullish for prices.  On December 1, the Ivory Coast's regulator halted forward sales for the 2023-24 Ivory Coast mid-crop, which starts April 1, 2024, so the nation's production forecast can be reviewed.  The halt adds to the tumult of the region's cocoa supplies, and the impact could multiply if the halt extends into the next season.

Also, on the bullish side, ICE-monitored cocoa inventories held in U.S. ports posted a 2-1/2 year low of 4,157,055 bags on Wednesday.

Concern about lower cocoa production in Ghana, the world's second-largest producer, is bullish for cocoa prices.  Ghana's cocoa regulator said on August 16 that some of its cocoa farmers are unlikely to fulfill some of their cocoa contracts for a second season.  Ghana's regulator postponed 44,000 MT of cocoa shipments to future seasons due to a lack of supplies.  Ghana's 2022/23 cocoa crop is now expected to be around 683,000 MT, a 13-year low and 24% below initial estimates of 850,000 MT, as a lack of fertilizers and black pod disease hurt cocoa yields.  

Cocoa prices remain supported by concern that an El Nino weather event could undercut global cocoa production.  Cocoa prices rallied to 12-year highs in 2016 after an El Nino weather event caused a drought that hampered global cocoa production.

On the bearish side, soaring cocoa prices are undercutting global cocoa demand.  The National Confectioners Association reported on October 24 that Q3 North American cocoa grindings fell -18% y/y to 97,881 MT, weaker than expectations of a -12% y/y decline and the smallest grindings figure for a Q3 in 15 years.  The Cocoa Association of Asia reported on October 23 that Asia Q3 cocoa grindings fell -8.5% y/y to 211,468 MT.  The European Cocoa Association reported on October 12 that European Q3 cocoa processing fell -0.9% y/y to 366,298 MT, an improvement from the -5.7% y/y decline in Q2.

The International Cocoa Organization (ICCO) reported that global 2022/23 cocoa production increased +2.4% y/y to 4.938 MMT, and global cocoa grindings increased +0.2% y/y to 5.005 MMT.  ICCO estimated end-of-season 2022/23 global cocoa stocks at 1.707 MMT and the cocoa stocks-to-grinding ratio at a 7-year low of 34.5%.  ICCO estimated the global cocoa deficit for 2022/23 at -99,000 MT.
 

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