Sep ICE NY cocoa (CCU23) on Thursday closed -72 (-2.16%), and Sep ICE London cocoa #7 (CAU23) closed -116 (-4.52%).
Cocoa prices sold off Thursday, with NY cocoa falling to a 2-week low and London cocoa falling to a 1-month low. Signs of weakness in cocoa demand sparked long liquidation in cocoa futures. The European Cocoa Association reported European Q2 cocoa processing fell -8.5% q/q and -5.7% y/y to 343,283 MT. Also, Barry Callebaut, the world's biggest chocolate maker, reported that its sales volume fell -2.7% in the first nine months of the fiscal year ending May 31 as higher prices hurt sales.
Losses in London cocoa accelerated Thursday after the British pound (^GBPUSD) surged to a 15-month high. The stronger pound undercuts cocoa priced in sterling.
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.
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.
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).
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 reopening of the global economy from the pandemic has boosted chocolate demand. 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.
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.
