The International Cocoa Organization (ICCO) released its latest cocoa statistics in late February. Comments note concerns over the macroeconomic picture around the world and slowing demand.
Versus 2021/22, ICCO sees total 2022/23 world cocoa output growing 4 percent, not a bad recovery after recent weather and high prices for inputs like fertilizer. Against that, ICCO sees a more troubling environment for consumption after the disappointing Q4 2022 grind results for most major reporting regions. ICCO now sees 2022/23 grind falling by 1 percent. Given the production estimate, that would leave a nominal deficit akin to a rounding error. So overall, ICCO sees S&D pretty well matched up for the current season despite the harsh dry season.
Since the start of 2023, cocoa futures have appreciated, up just over 10 percent. Market participants mostly reacted to news that dry weather crimped the tail of the main crop and could affect the start of the coming midcrops. As weather trimmed production estimates, exporters grew concerns over a potential shortage of physical bean stocks to meet contracted sales, hinting at possible defaults.
Origins largely downplayed that risk, but emotion stirred the pot and speculators added to the hype, sending cocoa prices higher. But with ICCO now adding its voice to concerns over demand, the market may be in overvalued territory and vulnerable to a pullback.
ICCO’s latest forecasts trimming the potential deficit and showing the market as roughly in balance may prompt some recent bulls to take profits and exit the market. These views could become more solid once Q1 grinds are released after mid-April.
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