Cocoa Prices Close Moderately Higher On Short-Covering Ahead Of Q1 Global Cocoa Grinding Data

Cocoa Prices Close Moderately Higher On Short-Covering Ahead Of Q1 Global Cocoa Grinding Data

Rich Asplund – Barchart

May ICE NY cocoa (CCK21) on Tuesday closed up +41 (+1.73%), and May ICE London cocoa #7 (CAK21) closed up +33 (+1.09%).

Cocoa prices on Tuesday posted moderate gains, with NY cocoa at a 1-week high. Short-covering ahead Q1 global cocoa grinding data pushed cocoa prices higher on Tuesday. The consensus is for Q1 North American cocoa grindings to climb +2.5% y/y and for Q1 Asia cocoa grindings to climb +0.3% y/y, although Q1 European cocoa grindings are expected to fall -2.0% y/y. The European Cocoa Association will release grinding data on Wednesday, and the National Confectioners Association will release North American data on Thursday. The Cocoa Association of Asia will release its Q1 cocoa grinding data on Friday.

Cocoa prices have recently been in a slump as London cocoa fell to a 4-month nearest-futures low Monday and NY cocoa dropped to a 5-month low last Friday. The outlook for bumper cocoa crops in West Africa has undercut cocoa prices and sparked fund selling in cocoa futures. Cocoa farmers in the Ivory Coast and Ghana are reporting favorable growing conditions that bode well for the mid-crop harvest that just began.

Cocoa supplies are ample from the Ivory Coast, the world’s largest cocoa producer. The Ivory Coast government reported last Thursday that cumulative cocoa bean deliveries to Ivory Coast ports during Oct 1-Apr 4 were unchanged y/y at 1.78 MMT. Also, current inventories are abundant after ICE-monitored cocoa inventories climbed to a 1-3/4 year high on Monday.

Demand concerns are also weighing on cocoa prices. Chocolate demand in Europe may suffer after France, Italy, and Germany all widened their pandemic lockdown measures in an attempt to contain the third wave of Covid.

A negative factor for cocoa was the February 26 projection from the International Cocoa Organization (ICCO) that global 2020/21 cocoa production will climb +2.5% y/y to 4.8 MMT and that the global 2020/21 cocoa surplus will widen to +102.000 MT from +10,000 MT in 2019/20.

The outlook for ample cocoa supplies is bearish for prices. On January 29, Marex Spectron projected that the global 2020/21 cocoa surplus would widen to +190,000 MT from +8,000 MT in 2019/20. Marex Spectron also projects global 2020/21 cocoa production will increase +5.4% y/y to 4.9 MMT due to a bumper crop in the Ivory Coast.

A supportive factor for cocoa was Citigroup’s action last Tuesday to cut its global 2020/21 cocoa surplus estimate to +150,000 MT from a prior estimate of +275,000 MT.

Cocoa prices found support on better-than-expected Asian and North American Q4 grinding data. Data on January 15 showed Asia Q4 cocoa grindings fell -4.2% y/y to 217,546 MT, a smaller decline than expectations of -9% y/y. Also, North American Q4 cocoa processing unexpectedly rose +7% y/y to 118,043 MT, stronger than expectations of a decline of -2.5% y/y and the highest for a fourth-quarter in 5 years. However, the European Cocoa Association reported January 20 that Q4 European cocoa grindings fell -3.1% y/y to 344,151 MT, a bigger decline than expectations of -1.5% y/y and the weakest report for a fourth-quarter in 4 years.

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