Sunday, May 2nd, 2021

Cocoa futures finished the week down 2.78% in New York and down 2.43% in London basis the July contracts – the pound/dollar finished the week down 0.39%. It was a volatile week for the cocoa markets after an initial rally was met with strong technical resistance across both markets, with the New York market unable to hold above the key moving averages and the London market unable to hold above the 23.60% retracement. The resistance without a doubt caught some participants by surprise, which ultimately led to the sharp sell off during Friday’s session. May options also expired in London on Friday, which resulted in 1,094 lots of May’21 £1,600 Puts being exercised as well as 5,900 lots of May/July puts and 250 lots of May/September -30 Puts. There have been some market rumors about significant power issues in Ivory Coast that have affected processing plants but at this time we are unable to quantify how much processing has been or will be lost and what the ultimate affect – if any – there will be on the market. Cocoa bean arrivals in Ivory Coast have continued to come in stronger than the previous year and now stand at 1.97 million metric tons, which is up from 1.87 million metric tons a year ago. On Friday, the CCC announced that they are budgeting $18.40 million to subsidize exporters to guarantee prices for cocoa farmers. They also announced that they expect cocoa output to reach 2.225 million tons for the current 2020/21 season, which is in-line with market forecasts.

Hershey and Mondelez reported their quarterly earnings last week, both of which were better than expected. According to Hershey’s CEO, “consumer mobility is improving in the U.S., and our away-from-home businesses performed better than expected…despite challenging COVID conditions across the globe, sales in our international markets exceeded expectations.” In regards to how they expect the future outlook for demand to shape up, she said, “we expect certain pre-pandemic behaviors to rebound, including in-person schooling, restaurant dining, and in-store shopping…we saw a significant improvement in our sales in these channels in the first quarter.” Sales in the company’s retail store and world travel retail locations increased by 4.50% in the first quarter versus being down 50.0% in the fourth quarter of 2020. For Mondelez, the CEO said that “chocolate grew more than 10.0% for the quarter, with a two-year average of 6.50%. Our large chocolate countries such as India, the UK, Germany, Brazil, and Russia all turned in strong results.” It’s interesting to note that two of the countries with strong results, India and Brazil, are also two countries suffering from another wave of COVID. The results are encouraging as it pertains to chocolate demand going forward. In the U.S., it was reported last week that personal incomes soared in March by the most in monthly records back to 1946, powered by a third round of stimulus checks. Gross domestic product in the U.S. also increased at a 6.40% annualized rate. Cocoa demand correlates best with gross domestic product growth, which is something all economists are expecting to rebound in both the U.S. and E.U. this year. The Federal Reserve also held its key interest rate near zero and said it plans to continue supporting the economic recovery. Chairman Jerome Powell said the recovery has advanced “more quickly than generally expected,” while adding that it “remains uneven and far from complete.” With continued support from the central bank, the dollar will likely continue to remain under pressure for the time being as inflation increases.

Higher arrivals for the 2020/21 season that are mostly in-line with the market forecasts should already be discounted into the price of cocoa while expectations for a sharp rebound in demand and potential adverse weather over the summer are not being discounted. The certified stock number in New York is due to fall at the end of the month once the majority of grading certificates expire while the total stock in London is still at historically low levels. With the spot spreads trading in carry in both New York and London, the system specs have clearly been fueling the selloff as the downside momentum accelerates. The net position across both markets is now at its lowest level since November 17 th , 2020 with both New York and London cocoa currently the shortest agricultural commodities on the board relative to their historical range. We find it hard to believe that any spec would want to be that short any commodity in the current environment unless of course it is a hedge against long everything else. Even if the latter is true, there is no compelling argument to be short cocoa at these levels. Whether or not the spec continues to build a short position in cocoa is really anyone’s best guess. Industry is supporting the back months across both markets but there is limited buying in the nears for the time being, which makes the market vulnerable to further downside. However, from a fundamental perspective, we believe there is more upside risk than downside at current levels and we recommend scaling into any further selling from the spec.

From a technical perspective, prices in New York found resistance at the 50-day, 100-day, and 200-day moving averages at $2,491, $2,489, and $2,481 respectively basis the second position continuation contract. The next major level of support will be at the 61.8% retracement of the move from the low that occurred on July 8 th, 2020 to the high that occurred on November 24th, 2020 at $2,370, which is also where the recent lows are. In London, prices found resistance at the 23.60% retracement from the high that occurred on March 3rd to the low that occurred on April 12th at £1,657 basis the second position continuation contract. This level will continue to the be the next major level of resistance. Prices are now at the recent lows. If the support is broken, the next major level of support is at £1,582. New York Cocoa, Second Position Continuation Chart London Cocoa, Second Position Continuation Chart

As always, thank you for reading. Please feel free to reach out with any questions.

Best Regards

Eric Bergman Vice President JSG Commodities 203.853.3000 www.jsgcom.com

This report has been compiled for general informational purposes only. While every effort has been made to ensure accuracy, Jenkins Sugar Group, Inc. assumes no responsibility for errors and omissions. Under no circumstances may this report be forwarded without prior approval.