Cocoa prices on Monday posted moderate losses. Weakness in cocoa butter prices prompted long liquidation in cocoa futures after cocoa butter prices fell to a 1-week low Monday. Losses in London cocoa futures accelerated Monday after the British pound (^GBPUSD) rallied to a 2-1/4 month high. Strength in the pound undercuts cocoa priced in sterling.
Signs of smaller cocoa output in the Ivory Coast are bullish for prices higher. On Monday, data from the Ivory Coast government showed Ivory Coast farmers shipped 415,523 MT of cocoa to ports from October 1-November 19, down -29.4% from the same time last year. The Ivory Coast is the world's largest cocoa producer.
Last Tuesday, NY cocoa posted a 45-year nearest futures high, and London cocoa posted a record high on concerns that current cocoa production will be unable to replenish supplies to avoid a global deficit. Also, ICE-monitored cocoa inventories held in U.S. ports have declined steadily since June and posted a 2-1/2 year low Monday.
Recent heavy rain in West Africa has caused black pod disease to spread and is a major bullish factor for cocoa prices. The spread of the disease, which causes cocoa pods to turn black and rot, could result in lower cocoa crop quality and production and push the global cocoa market into a third year of deficit for the 2023/24 season.
Also, the spread of the swollen shoot virus is threatening Ivory Coast cocoa crops. The virus is transmitted via mealybugs that feed on the sap of cocoa plants and will significantly reduce cocoa crop yields before eventually killing the plant. Tropical Research Services estimates that about 20% of the cocoa crop in the Ivory Coast is infected with the swollen shoot virus.
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 at 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. 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.
Soaring cocoa prices are undercutting global cocoa demand. Circana reported that U.S. chocolate sales in the four weeks ended October 8 fell -9.2% y/y. 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 fewest grindings 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. On the more positive side of demand, Gepex, an exporter group that includes six of the world's biggest cocoa grinders, reported on October 17 that its Q3 cocoa processing rose +7% y/y to 183,731 MT.
The International Cocoa Organization (ICCO) reports 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 estimates 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 projected a global cocoa deficit for 2022/23 of -146,000 tons and said, "The expectation of a supply deficit has been compounded with weather variations, especially in West Africa."
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