Cocoa Prepared by Foresight August 1, 2018

TABLES

Cocoa Bean Price Forecast ...................................................................................... P. 4

World Cocoa Supply/Demand, Crop Year ................................................................ P. 7

World Cocoa Production ........................................................................................... P. 8

Cocoa Crops in Major Producing Countries ............................................................. P. 9

World Grindings of Raw Cocoa ................................................................................ P. 12

Quarterly Cocoa Grind for Major Countries .............................................................. P. 17

Cocoa Bean Prices: Average Daily Nearby Futures Closes .................................... P. 18

10/12 % Natural Cocoa Powder Prices, NYC .......................................................... P. 20

Ratio of 10/12% Natural Cocoa Powder Prices to Cocoa Bean Prices ................... P. 22

Cocoa Butter Prices .................................................................................................. P. 24

Ratio of Cocoa Butter Prices to Cocoa Bean Prices ................................................ P. 26

CHARTS

September 2018 Cocoa Futures .............................................................................. P. 5

December 2018 Cocoa Futures .............................................................................. P. 6

World Cocoa Production ........................................................................................... P. 10

World Cocoa Production--Four Largest Countries ................................................... P. 11

World Cocoa Grind ................................................................................................... P. 13

World Cocoa Production, Grind, & Stock Changes .................................................. P. 14

World Cocoa Carryover Stocks ................................................................................ P. 15

World Cocoa Stocks-to-Grind Ratio ......................................................................... P. 16

Cocoa Bean Prices (Nearby Futures) ...................................................................... P. 19

10/12 % Natural Cocoa Powder Prices .................................................................... P. 21

Cocoa Powder to Bean Ratio ................................................................................... P. 23

Cocoa Butter Prices .................................................................................................. P. 25

Cocoa Butter to Bean Ratio ...................................................................................... P. 27

PREPARED BY PAUL J. MEYERS WITH ASSISTANCE FROM RAE GILLETT

200 EAST 5th AVE • SUITE 109, NAPERVILLE, ILLINOIS 60563 U.S.A.

VA: (540) 450-8054 • NAPERVILLE, IL: (630) 210-7475 • FAX: (630) 579-9123

Cocoa Supply – Demand Outlook and Strategy Update

Futures Price Update:

• September futures prices declined to around $2070 a tonne in early August, $430 below a month earlier, but $130 above a year earlier.

• September futures prices have ranged from $2063-2594 a tonne in the past month.

Key Supply – Demand Factors:

• European cocoa grindings in the second quarter of 2018 rose 7.3 percent from a year earlier while North American second quarter grindings were down 3.1 percent from a year ago.

• Cocoa arrivals at ports in top grower Ivory Coast were seen at around 1,821 thousand tonnes by July 29, down from 1,951 thousand in the same period a year earlier, exporters estimated.

• Ghana's 2017/18 cocoa output could top 900 thousand tonnes, higher than the regulator Cocobod's forecast of 850 thousand, farmers said.

• Swollen shoot disease is worsening in the heart of Ivory Coast's cocoa belt, farmers and exporters said.

• We estimate 2018/19 world cocoa production at 4,705 thousand tonnes, 4 percent above a year earlier.

Summary of Key Factors:

• European cocoa grindings in the second quarter of 2018 totaled 356,109 tonnes, up 7.3 percent from a year earlier, but down 0.7 percent from the previous quarter, according to the European Cocoa Association. Trade expectations were for an increase of around 3 percent. Cocoa grindings in the second quarter marked their biggest year-over-year percentage rise since the 2010/11 season. North American cocoa grindings in April-June 2018 of 119,301 tonnes were 3.1 percent below the previous year, according to the National Confectioners Association. Grindings were below expectations that ranged from 1 percent below to 1 percent above the second quarter of 2017. The grinding figures were from 17 plants reporting in North America. Cocoa grindings in Asia rose 15 percent in the second quarter from a year earlier to 185,394 tonnes, data from the Cocoa Association of Asia showed. The second quarter figures were the highest since 2015, reflecting robust demand. The CAA includes cocoa grinders in Malaysia, Singapore, and Indonesia.

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• Cocoa arrivals at ports in Ivory Coast were seen at around 1,821 thousand tonnes between October 1 and July 29, down 6.5 percent from 1,951 thousand in the same period last season, exporters estimated. In the week ending July 29, arrivals of 14 thousand tonnes were down from 25 thousand during the same week last year. Rain was below average in the week ending July 29 in most of Ivory Coast's cocoa regions, but farmers said that soil moisture was still sufficient to support a healthy harvest when the main crop opens in October. Farmers said that small pods were developing well and that they hoped for a mix of rain and sunny spells to boost the quality of the crop and help it avoid disease. Data collected by Reuters showed that in June in Soubre, in the heart of the cocoa belt, soil moisture was 486 millimeters, well above the five-year average of 437 millimeters. We forecast Ivory Coast's 2017/18 mid-crop cocoa production at 575 thousand tonnes, 40 thousand below a year earlier.

• Ghana's 2017/18 cocoa output could top 900 thousand tonnes, higher than the regulator Cocobod's forecast of 850 thousand due to favorable weather and improved farming techniques, farmers said. Favorable rainfall across the world's second largest producer's cocoa belt will also boost the 2018/19 main crop. The West African country is in its wet season and has received more intermittent rains than in recent years. Farmers said the weather had aided pod development significantly. In addition, extensive pruning and prompt delivery of extension services also will bolster production. A hand pollination program launched by Cocobod last year was rapidly boosting yield, another farmer said. A senior Cocobod official told Reuters that the regulator was on target to achieve its 850 thousand tonne forecast for the year. We estimate Ghana's 2017/18 mid-crop cocoa production at 75 thousand tonnes, down from 88 thousand a year ago.

• Swollen shoot disease is worsening in the heart of Ivory Coast's cocoa belt with some plantations seeing a significant drop in production, farmers and exporters said last week. The viral disease, which typically kills trees within a few years, first appeared a few years ago in southern and western Ivory Coast, but is now causing serious damage to crops. About 60 percent of Ivory Coast's cocoa production comes from the south and west. The disease typically cuts production by a factor of two or three within four to five years. Swollen shoot appeared in central Ivory Coast in 2006 and 2007 in the regions of Bouafle, Sinfra, and Oume. According to authorities, more than 70 percent of plantations in the region were infected causing production on those plantations to decrease by about 60 percent between 2009 and 2017. Ivory Coast's cocoa board announced plans earlier this year to uproot 300 thousand hectares of infected trees over the next three years in an effort to curb the outbreak's spread.

• We estimate 2018/19 world cocoa production at 4,705 thousand tonnes, 4 percent above a year earlier, but 1 percent below the record 2016/17 crop. Generally favorable weather in West Africa in recent months will likely lead to a larger global cocoa crop in 2018/19. We estimate Ivory Coast's 2018/19 cocoa production at an all-time high 2,050 thousand tonnes, 100 thousand above the previous year, and 30 thousand above the 2016/17 crop. Ghana's 2018/19 cocoa crop is forecast at 925 thousand tonnes, up 50 thousand from a year earlier, but 45 thousand below two years ago. Nigeria's cocoa production in 2018/19 is projected at 255 thousand tonnes, 15 thousand above the previous year. World cocoa grindings in 2018/19 are estimated at an all-time high 4,600 thousand tonnes, 2 percent above a year earlier, and 4.5 percent above 2016/17 grindings. The larger world grindings are due to an expanding world economy and relatively low cocoa prices. We project a 2018/19 world cocoa surplus of 58 thousand tonnes compared with a 2017/18 global cocoa deficit of 45 thousand tonnes.

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Price Risk:

• Second-quarter cocoa grindings in both Europe and Asia were above trade expectations. The strong cocoa demand will support cocoa futures prices in the months ahead.

• World cocoa production in 2018/19 will likely increase from a year earlier, boosted by larger crops in Ivory Coast and Ghana. The outlook for higher world cocoa production in the upcoming crop year will weigh on futures prices in the next few months.

Historical Price Action:

• Nearby cocoa futures prices in July averaged $2373 a tonne, down $49 from a month earlier, but $443 above the July, 2017 average.

• In 6 of the past 10 years, nearby cocoa futures have decreased from August through December.

Price Outlook:

• Nearby cocoa futures prices in August-September are forecast to average $2300-2375 a tonne compared with $1967 a year earlier.

• For October-December, nearby futures prices are forecast to average $2275-2350 a tonne compared with $2038 a year earlier.

Coverage Recommendations: Cocoa, Cocoa Powder, and Cocoa Butter

Cocoa Futures:

Upper Tier: > $2375 a tonne -- add coverage two weeks at a time to keep 4 weeks out

Middle Tier: $2275-2375 a tonne -- add coverage to keep 8-12 weeks out

Lower Tier: $2175-2275 a tonne -- add coverage for an additional 4-6 weeks

Cocoa Products Price Outlook:

• 10/12 natural powder prices averaged 89 cents a pound in July, up 2 cents from a month earlier, but 1 cent below the July, 2017 average. Prices in early August were about 90 cents a pound. Powder prices are forecast to average 88-94 cents a pound in August-September compared with 90 cents a year earlier. Powder ratios in August-September may average 0.85-0.90 times nearby futures.

• Cocoa butter prices averaged 297 cents a pound in July, down 16 cents from the June average, but 60 cents above the July, 2017 average. Prices in early August were around 280 cents a pound. Cocoa butter prices are likely to average 285-295 cents a pound in August-September compared with 244 cents a year earlier. Butter/bean ratios may average 2.75-2.80 times nearby futures in August-September.

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