09.08.2023 – Is this it for the rally in cocoa? Or are we just seeing a temporary setback? Either way, the price has just taken a sharp turn south. We take a look at the background.
It can happen that fast: Since April, the cocoa price had known only one direction – up. The price worked its way up to the high from 2011. But just now the bears invaded the chocolate market. Here is the daily chart.
Source: Bernstein Bank GmbH
According to the website “Barchart.com”, the reason for the recent development is this: “Favorable Weather In West Africa Sparks Long Liquidation In Cocoa Futures”. So the bulls have cashed out for now and closed buying positions.
Plant rot
For now, the heavy continuous rains in West Africa seem to be over. And the outlook for the crop has improved because farmers can work better and a little dryness is good for the plants. Recently, plant diseases had spread: Sprout virus and black pod disease caused increased blackening and rotting of plants. In addition to crop losses, the global market had feared lower quality – and ultimately expected a third season in deficit in 2023/24.
Shortage in the market
Thus, exports from the world’s largest cocoa producer slipped: Ivory Coast farmers shipped 2.9 percent less year over year in the period from Oct. 01 to Aug. 06, according to “Barchart.com.” In addition, inventories at U.S. ports were recently the lowest in more than four months, according to the Intercontinental Exchange commodity exchange in Atlanta.
Côte d’Ivoire forward sales for the period from Oct. 01 to July 07 fell 1.3 million metric tons, or 13.3 percent, year over year. The Ivorian government agency Le Conseil Cafe Cacao had also said on July 18 that Ivory Coast would no longer allow contract sales for exports in the 2023/23 season.
He who comes too late…
Remains a short note on the subject of Behavioral Finance: Always keep an eye on the contra-indicators. Just yesterday, for example, the “Frankfurter Allgemeine Zeitung” noticed the cocoa rally. In the online edition, the title read: “Cocoa prices at historic highs”. The lesson for shrewd traders: when the mainstream media discover a theme, the party is usually over. Because when the old aunts are lured onto the trading floor by such articles to buy, it’s time for the pros to take their leave. Because there is hardly anyone left to support the prices.
By the way, we had already reported on the chocolate bull market weeks ago. Always keep an eye on the realtime news as well. Not only, but also for the soft commodities. Bernstein Bank wishes you successful trades and investments!
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