The cocoa market has been difficult to lock down the last several weeks as many in the trade believed we may have found a bottom. Sadly, it was not to be, and 2000 soon untraveled to a low of 1890 leaving many in disbelief. However, the goal of higher priced cocoa is still not only on the mind of the trade, but that of the producers. The question now is, will the trade find enough evidence to push and keep rice’s higher in the next 6 to 8 weeks?
Since the end of August, cocoa has been in a never ending downtrend. This trend continues to date, but the idea that excess cocoa may now be getting picked up at rock-bottom prices has alleviated some of the stress on the market. Frankly, cocoa has not been priced at these levels since 2006 and soon after rallied due to the inexpensive ability for end users to buy longer term contracts at significantly cheaper prices. Therefore, one could argue that lower prices may stimulate a better sales and grind numbers and start to build prices back up.
Next, a wave of contract defaults in West Africa has also lead to cocoa spoiling in warehouses. The defaults were due to producers holding onto their cocoa in the hope that prices would rebound. The rebound never took place, and many instead let cocoa sit in warehouses building up sizable stores. Thus, instead of letting anything further go to waste we are now seeing auctions take place on defaulted contracts that should support prices for now.
I would still urge the trade to look at methods of taking advantage of higher prices. The market may still not be on perfect footing, but there are strategies that can help keep someone long for many weeks. Feel free to reach out if you wish to discuss these strategies in detail.
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.