Morning Cocoa: Declining Production is Supportive; Demand Likely Up Long Term
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While the cocoa market had a bumpy finish to the holiday-shortened week, it was able to post three positive daily results in a row. If global risk sentiment can retain a positive tone, cocoa can extend its recovery move. For the week, March cocoa finished with a loss of 24 points (down 1.0%) which was a second negative weekly result over the past 3 weeks. A "risk on" pre-holiday mood across global markets was fueled in part by ideas that while the Omicron COVID variant is more transmissible, it is milder than other COVID versions. Both of those provided underlying support to the cocoa market as that can help to soothe concern with near-term demand.
There has been further evidence that major West African producers are going to see this season's cocoa production fall significantly below last season's total. The head of Ivory Coast's Cocoa and Coffee Association that this season's slow start is likely to continue through March. With their port arrivals 12% to 13% behind last season's pace through late December, there is a chance that Ivory Coast 2021/22 production may come in below 2 million tonnes.
TODAY'S MARKET IDEAS
London cocoa will be closed for the Boxing Day holiday. With supply-side developments providing underlying support, cocoa should retain a positive tone if global markets can retain a neutral or "risk on" mood. Near-term support for March cocoa is at 2467 and 2436, with resistance at 2516 and 2572.
