Source: Golden Ten Data
It plummeted 17% in the intraday period, the biggest one-day decline in more than 60 years, and traders panicked out of this chaotic market. Is the turbulent market coming to an end?
Cocoa futures prices in New York and London fell sharply on Monday. As fewer and fewer companies can afford rising transaction costs, the market is prone to large price fluctuations.
In the New York market, the most active cocoa contract once fell 17% to 8,800 US dollars per ton, the biggest intraday decline since 1960. Futures closed at $8931 per tonne, the lowest in more than a month. Due to improved weather forecasts and declining liquidity, the market is highly volatile. Cocoa prices may fall today and rise again tomorrow. Overall, after more than doubling this year, cocoa futures have fallen more than 20% from the record high set on April 19.
Cocoa prices fluctuate wildly
The Intercontinental Exchange has raised the capital the company needs to invest to support its positions several times, causing traders to leave the market one after another. According to data compiled by foreign media, the total number of open contracts in the New York market is close to its lowest level in more than 10 years. In the London market, cocoa futures prices dropped significantly last week due to actions by Côte d'Ivoire, a major producer, to compensate shippers for losses caused by unexpected increases in prices paid to farmers to avoid a wave of cocoa export defaults.
Leonardo Rossetti, an analyst at StoneX, said that the increase in transaction margin requirements and the drastic reduction in the number of outstanding contracts “have opened up more room for trend reversal, and the reduction in participants will bring more drastic fluctuations.”
Ole Hansen, head of commodity strategy at Saxo Bank, explained to the Dow Jones News Agency that Monday's sell-off was triggered by improved rainfall weather forecasts in West Africa, a mecca for cocoa cultivation. He also pointed out that the monthly contract showed strong signs of “buyer fatigue.”
“Due to sharp fluctuations in cocoa prices, market liquidity has also disappeared, so any news, good or bad, will cause sharp price fluctuations,” Hansen said. He added that the latest COT report showed that commercial traders generally sold off, long exposure fell to a 14-month low, and traders panicked out of the chaotic market.
However, despite the sharp drop in cocoa prices, “the shortage is not over,” said Paulo Torres, a trade and agriculture consultant in London. “The 'elephant in the room' (an obvious problem) is the fact that Côte d'Ivoire and Ghana have no cocoa.”