Cocoa prices witnessed a recovery from one-week lows as a weakened dollar sparked short covering in cocoa futures. The market’s outlook for tighter future cocoa supplies led to fund buying, supporting the recent rally in prices to a 12-year high. However, the surge in funds’ long positions could also bring potential long liquidation pressures.
Tightness in supplies contributed to the bullish trend, with Ivory Coast’s forward cocoa sales falling significantly compared to the previous year. The spread of black pod disease in West Africa due to heavy rain raised concerns about lower cocoa crop quality and production, potentially pushing the global cocoa market into a third year of deficit.
Reduced cocoa supplies from Ivory Coast, the world’s largest cocoa producer, added to price support, as did dwindling cocoa inventories held in U.S. ports. Moreover, fears of an El Nino weather event impacting global cocoa production further contributed to cocoa prices’ upward trajectory.
Smaller cocoa supplies from Nigeria and signs of robust global chocolate cocoa demand also played a role in bolstering prices. Swiss chocolate maker Lindt & Spruengli AG reported strong chocolate demand, signaling an uptick in consumption following the reopening of the global economy.
However, the recent surge in cocoa prices started to affect demand, with cocoa processing falling in North America, Asia, and Europe. Even the world’s biggest chocolate maker, Barry Callebaut, reported a decline in sales volume due to higher prices impacting consumer demand.
Despite the optimistic outlook for cocoa demand, the International Cocoa Organization (ICCO) foresees a global cocoa deficit for 2022/23, driven in part by weather variations in West Africa. The combination of supply concerns and increased demand poses both challenges and opportunities for the cocoa market in the coming months.