New Year, New Cocoa Market?

January 5, 2017 9:43AM CST

Entering the New Year, some analysts are anticipating cocoa to be the best performing commodity of 2017. After being down 34% on the year in ’16, there doesn’t seem to be much downside left. Cocoa hadn’t performed this poorly since 1999. The reasons for this type of year – lack of demand, constantly changing supply data, an abundance of production and a lack of conviction by long-term bulls to give this market another chance. But traders were not confident to short the market either at times. West African data was uncertain, demand fluctuated based on the time of year and weather was extremely positive for growing regions at times, but also created black pod disease for some areas.

2017 is here, so far cocoa has started off fairly strong. A bottom may have been put in December 30 th , the last trading day of 2016. Little rain has been received in Ivory Coast and this could hurt mid-crop production. Once again the market is expecting a large global production level – but we know this can change quickly. Ghana is seeing its crop numbers down, lack of rain and dry conditions have hurt that area of world thus far. These prices have reached an attractive level for funds and hedgers to buy back in. Speculative traders that are cautious have started looking at buying calls instead of outright futures. These options are at lower prices than the past historically. If demand can make a comeback, production can come down a bit due to the recent weather front cocoa prices may see a rally back above 2300 by February as traders start to focus on the May contract.

Cocoa Daily

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