Cocoa: Facing A Combination Of Bullish Factors

person holding brown and black seeds

Photo by Etty Fidele on Unsplash
 

ICE New York cocoa futures rose to their highest level in more than two years on Monday, March 27, as funds bulked long positions amid tighter supplies.

New York cocoa (CCc1) for May was up 0.6% at $2,901 a tonne by 1133 GMT, having previously touched a peak of $2,907—its highest level in recent months since December 2020.

Traders said the recent surge was partly due to tight supplies in Côte d'Ivoire, where port arrivals lagged behind last year's.

Diseases like swollen bud virus have hurt the production prospects of the world's top breeders. Speculators continued to be net-long New York cocoa. Meanwhile, May London cocoa (LCCc1) rose 0.2% to 2,140 pounds a tonne.

Prices were pushed higher by a monthly report from the International Cocoa Organization (ICCO) on Friday after it said cocoa exports from Côte d'Ivoire fell -9.3% YoY to 530,314 tons in the October-January period due to “unfavorable cocoa-related diseases’ effects” such as cocoa bud virus disease.”

Ivorian farmers shipped a total of 1.75 MMT of cocoa to Ivorian ports between Oct. 1 and March 19 in the 2022/23 marketing year, which coincided with lower cocoa shipments, -3.8% decrease from the previous year, from Ivorian ports sparking fund-buying. 

Meanwhile, ICCO forecasts that global cocoa stocks in 2022/23 will fall by -3.5% YoY to 1,653 MMT. Expectations of supply shortages have been exacerbated by erratic weather, especially in West Africa. On the downside, ICCO forecasts that global cocoa production in 2022/23 will grow by +4.1% YoY to 5,017 MMT and that global cocoa milling will decline by -0.6% YoY to 5,027 MMT. The global industrial chocolate market may reach US$ 57 billion by 2023, recording a 4.4% CAGR. By 2033, the market is expected to reach US$ 87.68 billion. So cocoa became the final soft commodity to post a multi-year peak. 
 

Summary 

As was the case for all previous micro-rallies this year in other soft commodities, cocoa price strength is backed not just by one or two isolated supportive factors, but rather by a whole combination of them – such as lower plantings because of the reported cocoa bud virus disease, amplified by lower shipments because of logistical problems, as well as bad weather forecast going forward, and declining global cocoa milling and lower global wholesale stocks.

As such, it looks logical to anticipate further tightness of cocoa supplies, pointing to cocoa prices’ current hike gaining momentum. Episodes of U.S. dollar strength backed by the Fed’s actions, nevertheless, are able to occasionally interfere with the smoothness of this upward trend.


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