Grinding data came in better than expected for cocoa. As traders waited for the data to be released, we saw new lows put in the September Cocoa contract. European grinding data came in much higher than last year’s numbers causing a two-day rally in the market. Since the release, we have seen pullback, most likely profit taking. The world continues to slowly reopen but as that happens, Covid cases appear to be on the rise in pockets. This uncertainly and constantly changing data is one of the main reasons for market volatility.

Technically, the recent rebound has created new support. If the market can trade and hold above 2400, look for more buyers to be attracted back into the market. If clients want exposure for the chance that the market recovery holds, look at further out call options. The demand will eventually return, but the question is when and what will have to take place for investors to believe in the longer-term positive outlook.

After December cocoa made a new high, it has pulled back to 2600. The macroeconomic picture is pretty gloomy this week. Rising Covid infections, mixed financial data and currency volatility has made for an interesting trading week. The COT data released this week should be pretty telling to see where trader’s heads are at. Production is up, bearish for prices. Ghana’s output is at the highest level in ten years. The demand tone is weaker again due to the rising Covid cases and restrictions being put back into place globally.

For now, traders should look out longer term if they are anticipating a recovery. In the near-term puts may be a good idea for downside protection as the next few months may continue the pattern we saw earlier this year of lower cocoa futures prices. 2500 is a realistic downside target.

Peter Mooses

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.