Cacao Market Update 2022

Macro and Forex

Euro: As for the euro and the economy in the Eurozone, the near future remains complicated, although this month we have seen some signs that generate some hope. First, inflation in the euro area fell in November to 10% annually, below the 10.4% expected by the market. This is the first decline in inflation in the euro area in a year and a half. Lower energy prices have helped to bring down inflation in many countries, although a fall in overall demand in the manufacturing industry is also beginning to be felt. This fact has been reflected in the latest S&P manufacturing PMI data for November. The drop in inflation is obviously positive, but it should be remembered that it is still 5 times higher than the ECB’s inflation target and that core inflation remains at 5%, a fact that Mr Luis de Guindos pointed out this week. Given that inflation is falling and that Jerome Powell commented that the December meeting might be the time to slow the pace of interest rate hikes, putting these two facts together, it would not be difficult to see both central banks abandoning the 75 basis point hikes. Although it should not be forgotten that there would still be hikes to come, according to their statements. On the other hand, the ECB is also thinking of undoing the bond purchases it made during the pandemic to sustain the economy during the difficult period. Something that will also have an impact and should be aligned with the rate hike. A decrease in the rate increase pace of the ECB, will not help to the euro probably, but most of the effect should be already discounted. Although keeping a more hawkish stance a raise again 0,75% the rates, could mean a deeper recession. It’s a tough decision, and difficult to measure the reaction.?

US dollar: :As mentioned above, the big news is the already publicly mentioned possibility of a slowdown in the pace of rate hikes by the FED (although they will continue to rise). This has meant some weakness for the US dollar, as was to be expected. On the other hand, the possible easing of China's Covid measures would also have a bearish effect on the dollar because part of the flows that were in the US currency looking for a safe haven would move to other riskier investments. News about the situation in China has had a strong impact on currencies in recent weeks. As for the US economy, some signs of weakness are becoming increasingly evident. The real estate sector, which is generally considered to be in line with the economic cycle, is showing clear signs of slowing. US house prices fell for the third consecutive month, the first time in 10 years. On the other hand, the housing market index of the National Association of Home Builders, which gives us signals about the state of the housing market in the country, has been falling for months. Some economic studies point to the relationship between this sector and the economic situation in the coming months in the country. Showing that after big drops in the real estate sector, effects on the unemployment rate and the GDP can be seen with about 12 months of delay. The sector should not be necessarily the cause of the?negative effects, but it’s a good indicator of the real economy normally. On the other hand, the US bond yield curve has reached its highest inversion point since the early 1980s. This inversion not only occurs in the US market, but even globally and is often used as an indicator of possible economic crises (inversion on the curve, normally means that a recession is coming). On the other hand, the PMI manufacturing index has contracted in November, a fact that we see replicated in many other countries. The dollar lost almost 5% during November.?

Gbp: The entry of Rishi Sunak as prime minister may have given some sense of calm to investors in sterling, which seems more stable than in recent months. The fact of having a more stable government and getting out of the media spotlight is helping to generate this feeling. This does not detract from the fact that the economic situation is complicated, as in many other countries, and that expectations for economic growth in the coming months are not very favourable. The latest inflation rate in the UK reached 11.1% annualised for October, and we will have to wait until mid-December to know the November rate, and see if the fall is replicated as we saw in the United States and Europe. For now, we know that the food inflation rate, which rose in November to 12.4% annualised. Something that is affecting the pockets of British citizens. In terms of indicators, the manufacturing PMI rose slightly in November but found itself in its fourth consecutive month below 50 points, i.e. in contraction. Giving a sign of the state of this part of the economy. Something generalised in many countries as mentioned above. On the other hand, house prices have also been falling for three months, a result of rising financing costs, a greater diversion of the household budget to other aspects of the rising prices, and also the uncertain future does not lend itself to taking large economic risks for many. The strong performance of the pound against the dollar seen during the month, as with the EUR/USD, is due to a weaker US dollar, rather than a stronger pound, although it may have broken the trend of weakness seen previously. This is also reflected against the euro, which both remain within a range (for now) between 0.86 and 0.877 mostly. At least during this time of stabilisation.

Cocoa Production Countries Ivory Coast

Cocoa arrivals at ports in the World’s top grower reached 718,000 tonnes by 28th November since the start of the season on the 1st October, up 1.1% from the same period last year.

Ivory Coast exported 1,519,506 tonnes of raw cocoa beans from October’21 to September’22, down 6.5% from the same period last year. In contrast, Ivory Coast exported 522,945 tonnes of semi-finished cocoa products, up 13% from the same period last year. Ivory Coast’s cocoa grindings were 58,555 tonnes in October, up 8.6% from the same period last year.?

Ivory Coast has completed the construction of a second container terminal at its main port in Abidjan. The terminal is expected to allow Abidjan to increase container traffic from 1.2 million TEU to 3 million TEU per year.

It seems that Ivory Coast have sold 180.000 tonnes of main crop 22/23 during the past weeks. This could be a sign of the decrease in the tensions between Ivory Coast and Ghana and the Cocoa and Chocolate industry about the implementation of the LID. A topic that has been in the spotlight in the past months.

Ghana

Rabobank cut its Ghana 2022/23 cocoa crop estimate to 760,000 tonnes from prior estimate of 800,000 tonnes due to the concerns regarding fertilizer and chemical availability, which is likely to stunt cocoa yields.

The depreciation of the cedi is seriously affecting Ghana’s ability to manage its debt. The currency has lost more than 50% of its value this year.

Other producing countries/regions: Ecuador – No further news available

Cameroon – No further news available

Nigeria

Nigeria exported 11,094 tonnes of raw cocoa beans in September, down 16% from the same period last year due to excessive rain. They are still suffering from heavy rains and flooding, which wiped out nearly half of the harvest potential, and the spread of black pod disease.

Congo– No further news available Brazil

Cocoa processing in Brazil increased by 3.5% in October compared with the same period last year to 25,766 tonnes. Locally produced cocoa delivered at processing plants in Brazil reached 16,810 tonnes last month, up 22% from the same period last year. Furthermore, imports in 2022 are only 11,034 tonnes versus 46,757 tonnes for the same period in 2021.

Asia – No further news available

Nederland – Moner Cocoa Group reserves its rights to express its own and independent opinion at any time. For the closure of this report were considered facts and assumptions which can change completely according to the updates and new releases in the press.

This report was closed on 2th of December 2022 at 17:00 ECT.

Market Update – November ?22

Weather News

Early this month begins with below-average rains mixed with sunshine in most of Ivory Coast’s cocoa-growing regions. Good weather, which has grown expectation for a strong main crop. Farmers said the state of plantation implied harvesting would be better between February and March, compared to last season, although adequate rainfall would be needed until end of this month.

In the second quarter of November, the weather continue with the same trend and soil moisture compensated the dry sunny weather in most of Ivory Coast’s cocoa-growing regions. Soil moisture is still high enough to support the main crop over the next two months, but more rain would be needed to prevent beans from becoming acid from January.

Market Overview

I think I am not very wrong if I say that many of us did not foresee a market above ￡2,000 by this stage of the year if someone had asked 6 months ago. The reality is that since August the market started a bullish move that so far does not seem to be ending. This statement is only applicable to the London terminal. The situation in NY has been quite different, being in a period of sideways movements for more than three months after a previous sharp drop of about $500 that lasted 5 months between February and July.

So far, cocoa demand does not seem to have fallen, at least not across the board. The results of cocoa- related companies, at least those publishing data, continue to be solid and bean grindings so far have not been negative at all. If we look at crop year grindings (from Q23-21 to Q3-22), around 5 million tonnes have been grinded, over 2% from last crop, depending on which source we take. This is probably an indication that demand continues to grow in the cocoa world. If we look at the supply and demand balance, we see a clear deficit for the 21/22 season, which could partly explain the rise in the market. This deficit could be close to -280k tonnes. If we look at the data from the International Cocoa Organisation (ICCO) they have just released their estimates for the 21/22 crop, looking at -306k tonnes. What is interesting is that their September estimate gave -230k, and in a estimate in May they forecasted -174k. This shows an increasingly tight balance as the months went by, which may have had an effect on the price seen. This deficit counterbalances the surplus generated in the 20/21 harvest during the pandemic, which helped to keep the market in contango structure during certain months and, above all, to maintain a lower price range. As for the current season 22/23, a new deficit of around -50k tonnes is expected for the time being, although there are still unknowns to be resolved in terms of future demand and the final part of the harvest.

Cocoa in Ivory Coast is flowing from the plantation areas to the port at a pace above the previous crop now that the strike problems in San Pedro are ended and prospects for the rest of the crops are good. In Ghana the crop is expected to improve after a poor 21/22 harvest and in Ecuador, it is expected to continue to grow again following the trend of the last years.

Going back to the supply and demand balance, it is curious that the effect of this stress due to higher consumption has been very accentuated in London, where we have a difference between the first position (Dec22) and the second (Mar23) of around ￡141. Being the Closing of the month with December 22 at ￡2.139 and March 23 at ￡1.998 (the situation in December has been worsening in this respect) . While in New York, the current first position (Mar23) finished $4 below May23. A small contango that reveals a completely different situation a lot of less stress on the price. This could be partly explained by the currencies at some point, or so it seemed, but now that the dollar has lost quite a bit of value the situation has not really balanced the situation. Probably the currency effect had its effect at some point and served as a trigger, but now the main forces are others.

If we look at the managed money situation, we see that in London they are at their highest net speculative long position for more than 3 years. That is to say, the difference between their buying and selling positions is the maximum in this time in favour of the. This is a completely bullish factor and helps to explain the strong upward movement of Dec22 in London. On the other hand, in New York the positioning has been quite different, where the managed money has been at the other end of the spectrum. Where what was strong were their sell positions, which would indicate a bearish view. For now it seems that neither NY nor London, seems to be changing their strategy. In NY we saw some change reducing their short positions, which resulted in the rise at the beginning of November of the market. The question is if they will add again more shorts and try to put the market back to the $2,300 level, or if it is really a change in trend and the market will go higher. As for London, it seems to be finding it harder and harder to keep going adding longs to the position and the relative strength of the sterling is not helping the rally either. The psychological barrier of ￡2,000 for London's second position has temporarily slowed the move.

The lack of activity measured by the volume during the sessions indicates a certain lack of clear direction in the market.?

Cocoa Chart ICE London – March 2023 (H23)?

The month of November started with an 8-session rally to bring the movement back into the bullish channel and even break the top of the channel temporarily. The end of October brought the second position of the London market into a short sideways momentum after breaking the bottom of the channel and bringing doubts as to whether the move was going to change its trend finally. Ending the uptrend started in August.

We see this in the 3 sessions to the left of the white vertical bar marking the start of November, after breaking the bottom of the green bullish channel, it also breaks the 50-day moving average which was above ￡1,870 at the time and which served as temporary resistance before the market bounced strongly.

A rise of 10.3% on the London price in a total of 8 sessions without a break. The fundamental reason for this rally was mainly the short covering of the first NY position and the Rolling from Dec 22 to Mar 23 seen in the terminal, due to the fact that the December 22 position was two weeks away from its first notice day. So many market players were leaving the position, especially funds that were short. As seen on the chart, we see during the rally 4 sessions outside the Bollinger bands, which indicates a change in market volatility.

If we look at the 50-day moving average line marked in yellow, the most reactive of the moving averages shown on the chart, it is practically parallel to the uptrend channel. Indication of a strong technical component in the movement and that there haven’t been really periods out of the marked channel . The similarity of the movement of the 50-day and 100-day moving average lines (in blue), does give an idea that what is explained in the previous lines also applies to the 100-day moving average.

To conclude the month, it seems that the ￡2,000 resistance is putting pressure on the price. It seems that the market needs some more strength to break through. The managed money in London has been growing its net speculative position for several weeks now, adding long positions, but seems to be struggling to continue at the previous pace. This could be a sign that it is nearing its limit.?

Cocoa Products Overview

November continue with the same trend seen in October with no major changes in products ratios as demand has been very regular and very well supported.

Liquor: Ratios have continued their rising trend, well supported by the strong demand from the Industry. Butter: For the second consecutive month, we see a high demand of the spot position for butter.

Solids (Cake/Powder): Expensive prices of cake at origin support the ratio of the powder.?

Nederland – Moner Cocoa Group reserves its rights to express its own and independent opinion at any time. For the closure of this report were considered facts and assumptions which can change completely according to the updates and new releases in the press.