Cocoa futures plumb fresh lows, as speculators throw in the towel
Category: Cocoa
(Agrimoney) – Cocoa futures continued to plummet, in a very high volume and volatile trade, amid ongoing uncertainty about West African production prospects.
Front-month cocoa futures reached down nearly 3% on the day in morning deals, to $2,898 a tonne, down nearly 10% since the start of the week, and the start of new year.
Prices are more than 15% off their peak, this time last month.
‘Clouded with uncertainty’
Cocoa futures reached a 5-year high last month, driven by ideas of a deficit in global production.
Ecobank noted that prospects for West African cocoa production were “clouded with uncertainty”.
Port arrivals in from the Ivory Coast, the world’s top grower, are lagging last year by 2.4%.
“The slowdown in deliveries is the end result of poor rains in the first half of 2015, which stunted pod development,” said the Togo-based bank.
Ecobank noted that the early strength in cocoa arrivals was in part the result of farmers holding back beans from the previous season, in order to cash-in on boost to the government supported farmgate prices.
‘The flush of the harvest’
But others have downplayed the slowness of the deliveries.
“We’re about 20,000 tonnes behind last year,” a New York-based trader told Agrimoney.com, “but we had a record crop last year. 20,000 tonnes is not a lot of cocoa.”
“I think a lot of the hedge funds bought into the story of the deficit for this year,” he said, “but we won’t know how much is being produced for a while.”
“This is the flush of the harvest,” he added. “This is the time of year when you see a little price pressure because there are more beans available.”
Stale news
Aside from the port arrivals, there has been little fresh news in the market.
“The markets been trading off of stale news,” the trader said. “It’s been the same story in cocoa for over a month.”
Next week will see the release of quarterly data on cocoa grinding, a proxy for demand, in the US and Europe.
The data will give an insight into how demand was faring during a period of very-high cocoa prices.
Risk management
And a stormy macroeconomic environment, particularly recent concerns around Chinese economic prospects, added pressure.
Chocolate is a luxury good, and remains highly exposed to consumer spending patterns.
“I think the market just got a little bit ahead of itself, and with the macro news around, they’re throwing the towel.”
“It’s called risk management.”
March cocoa futures in New York were down 1.5% at $2,937 a tonne at time of writing.
