Cocoa: Is the Bubble About to Burst?

June 2, 2017 4:29AM CDT

The cocoa market has continued to prove that risk outweighs most other circumstances in front of any given situation. It has pushed forward over 130 points during this short trading week. Fear that significant rains have caused harm to cocoa fields and additionally opened the door to the loss of cocoa in storage has caused a flight to risk premium. Therefore, even news yesterday from the International Cocoa Organization revising cocoa stocks higher, by about 382,000 tons, was not enough to keep people from covering long positions. Furthermore, Commerzbank and Rabobank have also called for larger surpluses at the end of the next two seasons. Now, it is important to note that certain market risk is not set to last forever. The trade is actively watching for signs that news will turn sunnier in the days and weeks to come which could easily lead to a significant sell off. Yet, until that day it would be wise to keep an eye on the 2100 level. Until we break and close above 2100 in the futures, a likely drop exists. I would recommend that in the long term traders continue to look for long options positions on large sell off in the market. Short term I recommend that one keep in mind the range in between 1800 and 2100. We have been trading the range since the end of February and may continue to do so until we catch a catalyst to break the markets indecisive range.

Sep '17 Cocoa Daily Chart

Sep '17 Cocoa Daily Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.