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Cocoa Supply Concerns Take Driver’s Seat as Prices Move Toward 2600

Posted 03/15/2018 7:31AM CT | Peter Mooses

During the month of March, cocoa futures (May contract) has moved over 300 points – rising about 14%. This recent rally has helped cocoa become the best performing commodity of the year thus far. Supply/demand news created this move and continues to support it. Ghana production is expected to come in lower still. Grinding data numbers from Ivory Coast are higher, ahead of last year. All supply news seems to be favorable for a bullish market. Technically, a continued close above the 9-day moving average is also a short-term positive.

A few things are concerning though – overbought levels, profit taking and the correlation between the euro, pound and dollar. Cocoa futures are overbought, eventually there will be a correction – where is the top? The chart seems to think 2600 is a realistic next target. Profit taking seems to be creating pullbacks and possible buying opportunities, but these patterns will eventually lead to consolidation. The euro and pound could be a good indicator of the demand for cocoa. A weaker dollar will also show us what the global outlook may be for commodities in the near-term and may lead to pressuring the markets.

Cocoa May ’18 Daily Chart

cocoa_may18_daily_chart

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Peter Mooses

Senior Market Strategist
Follow Peter on Twitter @PMoosesRJO. Peter's interest in trading began during a college internship with Bunge North America on the floor of the Chicago Board of Trade, where he assisted commodities traders and performed market research and analysis. Upon earning a B.A. in economics from the University of Iowa, Peter served as an analyst, transaction manager and team lead in the Global Trust Divisions for LaSalle Bank and Bank of America, where he managed transaction activity in multi-million dollar client fixed income and asset-backed securities portfolios. After years in the banking industry, it became apparent that Peter's real passion lies in futures trading. He joined RJO Futures because he enjoys the analytical aspects of futures trading and appreciates the economic impact that commodities have across all markets. Peter believes in utilizing market analysis and trends to help clients achieve balance between risk and return, while always keeping their investment objectives top of mind.
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