‘Irrational’ cocoa market poised for volatility

(Agrimoney) – Cocoa futures may be in for “another buying rout” if concerns over a dry spell in top producer Ivory Coast gain traction, veteran analyst Judith Ganes-Chase said, even as prices hit a one-month high.

“The weather is fine, crop outlooks are improving but this is the time of year where the market becomes fickle and reacts to the slightest whisper of a worry in West Africa,” Ms Ganes-Chase, at J Ganes Consulting, said.

It is a period when “the cocoa market reacts first and asks questions later so it would not be surprising if at some point soon the market raced sharply higher and then the balloon bursts quickly”.

‘The cocoa market is on a constant vigil’

Such an outcome could be spurred by weather in Ivory Coast, which has seen a period of depressed rainfall and high temperatures, which could reduce the size of the crop, as well as reduce the amount of product graded for export.

Rainfall has recently improved, but the market remains poised for details on the precipitation, and its impact on crops.

“Now again the market may be in for another buying rout if reports of crop concerns for the Ivory Coast are viewed as semi-legitimate,” said Ms Ganes-Chase.

“The cocoa market is on constant vigil watching for any indication that the top suppliers’ crops are in the slightest peril,” citing the threats of a “round of mad-dash buying” and of “sometimes erratic and seemingly irrational actions”.

Ghana’s ‘inexplicable’ downgrade

However, she also cited mysteries in data offered to the market, terming “inexplicable” a downgrade by the Ghanaian cocoa board of 9% to 820,000 tonnes in its forecast for the country’s production in 2014-15.

“While the weather generally favourable for the development of the 2014-15 main crop, there was a brief spell of dry weather, but this alone should not have been cause” of a cut to pod-count estimate, she said.

Lower use of fertilizer, as a “dizzying fall” in the Ghanaian currency boosted the cost of imports of products denominated in dollars, may also have played a role.

Cocoa futures for May hit a one-month high of $2,846 a tonne in New York on Monday, up from $2,679 a tonne at the end of March.