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Cocoa price is building momentum as grind data supports tight market

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There was much flurry in the cocoa market this week as traders positioned themselves for a move higher ahead of the much anticipated European and North American grinding data which were released Wednesday and Thursday.

The ongoing restrictions throughout Europe and the recent waves of new Covid variants were expected to start affecting demand for cocoa and chocolate. Surprisingly, the data which covers major grinders such as Cargill Cocoa and Barry-Callebaut in Europe and Hersheys and Nestle in the US, was mixed.

Despite all the movement and travel restrictions in Europe which were put in place in the late autumn and winter, the grind data released by the European Cocoa Association showed an increase of 6.3 % in the last quarter of 2021. In Germany, the biggest European chocolate market, grind rates rose 8.8%.

In contrast, grind rates in the US, Canada and Mexico dropped 1.2% on the year to 116,613 tonnes. The North American grind rate was expected to have risen by between 3% and 4% compared with last year and the drop in the number caught investors by surprise.

Cocoa market is starting to look tighter

The grind data came into a market that is tighter than usual. Supplies from Ivory Coast, which along Ghana accounts for more than half of the total world production, are running lower than in previous years. Exports in the last three months are down 2.3% compared with the same period in 2021.

The Ghanaian crop is also expected to be smaller this year with Ghana Cocoa Board forecasting a 5.6% decline to 950,000 metric tonnes.

Similarly, US inventories, which are monitored by ICE exchange, have been declining steadily since June when they stood at a record high of 5.86 million bags.

The tighter supplies combined with Covid-related supply chain issues have pushed cocoa futures prices to just shy of a three-month high with London cocoa trading close to GBP1,779 pounds a tonne and CME May cocoa futures at $2,660.

Looking at the Asian market, data from the Cocoa Association of Asia showed a rise of 6.33% year on year from the region’s cocoa grind.

Cocoa is building momentum

Prices have come off two lows over the 12 month period, with cocoa trading at 2234 in July, and then a second low established in November at 2317. The market is currently entertaining a resistance level for cocoa at around the 2740 level, which it has probed twice this year.

Cocoa prices are established on a number of exchanges, although the key price setters at the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange. Prices in New York are based off the South Asian market, while the prices in London come from the African market. African cocoa is dominated by exports out of Ghana and the Ivory Coast, which between them account for about 60% of the global cocoa market.

Prices in the cocoa market have been gradually trending up since 2017; there is quite a bit of volatility in cocoa, but we did see cocoa break 3000 in November 2020 which has been its most recent high to date above that level. The last time it traded at 300 was back in 2016 just before the bottom fell out of the market.

Explore WisdomTree Cocoa ETFs

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Cocoa
Hargreaves Lansdown | Interactive Investor AJ Bell Youinvest | Charles Stanley Direct | EQi
JE00B2QXZK10 COCO USD
WisdomTree Cocoa 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
JE00B2NFV803 LCOC USD

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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