This week has proven tough for the cocoa market. The downtrend that began to form at the start of November is still plaguing the market, and news that oversupply will continue into February is not incentivizing anyone to buy. The one question that seems to come up every day is, when should I look to buy the contact?
We have not been priced this low in cocoa since 2012. A time when the British pound was trading at a significant premium to the US dollar and during a time of very little to no political unrest. Two things that, for many years, we as analysts used to gauge where to look next on Cocoa prices. Yet, today we look less at currency and instability and more towards the supply and demand side of a product like cocoa. We look at the quarterly grind numbers to tell us how many more people in Europe, Asia, and North America look to satisfy their sweet tooth. In addition, we look at how fast West Africa can push cocoa out of their ports.
Currently, the price of cocoa is being pressed by the fact that many West African producers gambled on higher prices that never materialized. They are now at a point where they need to sell at any price to make sure they can stay liquid and look forward to their next crop. In addition, with current prices looking so favorable to the consumer, I would argue that demand will improve over the next two quarters. This should give the trade a reason to buy the market back up and possibly test values last seen a couple of months ago. Furthermore, the Funds should find the values in cocoa attractive for longer a longer term hold that could also help propel prices higher.
In the end, there are a variety of methods that one can use to both speculate and cover their price risk in the cocoa Market. I am happy to review these methods and welcome your questions.
Series 3 Licensed
Senior Market Strategist
After earning a bachelor's degree from the University of Illinois at Urbana-Champaign, Hector was encouraged by a relative at the Chicago Board of Trade to get involved in futures. Prior to RJO Futures, he was a broker at Lind-Waldock from 2002-2004. He is experienced in short-, medium- and long-term chart analysis and uses his knowledge in moving averages, oscillators, market sentiments, money management and pivot profits to assist clients. His advisory background includes Hightower, Helms, Getts, Elder and Berstein. In addition, he offers his ideas and market explanations to both Bloomberg and CNBC.