Morning Cocoa: Short Covering Could Support Bounce and Fundamentals Firm
While cocoa prices have made a sluggish start to the new year, the market continues to find support from bullish supply factors and a positive longer-term demand outlook. As long as global markets can avoid a negative shift in sentiment, cocoa should be able to find decent support. Very high new COVID case counts in several nations have increase the chances for new lockdown measures, and that has dampened cocoa's near-term demand outlook. In addition, the Eurocurrency reached a 2-week low which also weighed on cocoa prices as that could make it more difficult for Euro zone grinders to acquire near-term supplies.
Although last week saw above average rainfall in some areas, major West African growing regions have little to no rain in the forecast through late next week while daily high temperatures are likely to climb above 95 degrees Fahrenheit. These conditions may help with harvesting, drying and transporting cocoa beans, but they are likely to deplete soil moisture levels. As a result, they should have a negative impact on West Africa's late main crop and mid-crop cocoa production. While near-term demand remains a concern, the 2021/22 season remains on-track for a fourth straight record high grindings total.
TODAY'S MARKET IDEAS
Ivory Coast and Ghana production should come in significantly below last season's total, so the prospect of a near-balanced supply/demand outlook should provide underlying support to cocoa. Near-term support for March cocoa is at 2454, with resistance at 2498 and 2513.
Take a Free Trial of our Daily Comments, Weekly Market Letter and more! Subscribe today or Learn More
