Cocoa marketplace Hit With Second Crash In Weeks As Liquidity Evaporates

Cocoa futures in fresh York crashed for the second time in just days as liquidity evacuated, and a fresh weather forecast points to improve weather conditions for top producers of the bean in West Africa.

The most active cocoa contract in fresh York plunged 19% on Monday, recovering any losses on Tuesday, up about 5%. This followed the Cocoa Crash on May 1 of 18%.

Cocoa prices are retracing at the 61.8% Fibo level from this year’s evidence estimation from $4,000 a ton is $12,000. The rollercoaster price action continues to propel 60-day historical flexibility higher.

Bloomberg said the driver in the latest cocoa crash was due to a weather forecast of increased “rainfall booming the outlook for crops” and “low open interest in cocoa markets.”

Donald Keeney, elder Meteorologist at Maxar Technologies, said rains "shock improve conditions fast a bit" across Ghana, the world's second-biggest grower, and Indonesia. He said the top producer, Ivory Coast, will besides receive rainfall, adding that more precision is needed to reverse arid conditions across the world’s top-production cocoa farms.

More from Bloomberg:

A deficiency of moisture in top West African cocoa producers has weathered on supply in a marketplace already hit by Aging trees and disease. Prices Saw a 9% recovery last week, with money managers booting their net-bullish bets to a three-week high. Still, any effect that a evidence price set in mid-April will mark the highest of the historical rally.

Producers in Ivory Coast are welcomed that thunderstorms may spit off the fewer flowers on trees and hamper plant growth. The mid-crop harvest is tiny in souteast Ivory coast combined with last year. Rains are making it hard to transport beans to Ivorian cities, while smuggling is inactive taking place across the border to take advantage of better prices. In Cameraon, bean theft is an expanding problem. That’s promoting farmers to dry beans for a short period, which may impact quality. In souteast Nigeria, the rains have included that the dirt is getting its moisture back. In the southwest, trees are yet to respond to the rains. The hold in flowering is the consequence of the usage of the crow anti-fungal chemicals by farmers in erstwhile years, 1 grower in Ondo state said.

Days ago, Rabobank analyst Paul Joules said cocoa prices have likely peaked:

‘A combination of weathering global request and production responses, partially from countries without a fixed farmgate price, will aid alleviate the pronounced unprecedented sealed into current futures pricing,’ Joules said.

Still, ‘it’s likely that inflated cocoa prices will stick around for the next fewer years,’ he noted, adding prices are unlimited to return to ‘normal’ levels rapidly but have passed their peak.

Remember what Bloomberg’s Javier Blas warned about last month:

Liquidity in cocoa markets is rapidly evaporating.

The number of outgoing contracts (open interest) in fresh York and London combined has tumbled 40% since mid-January. NY open interest is at a 12-year low.

— Javier Blas (@JavierBlas) April 9, 2024

Meanwhile, Commodity trader Pierre Andurand stands by his $20,000 price mark for later this year.