As the world, especially in the United States, sees an increase in Covid cases some commodity prices are weakening. Cocoa had a small rally but failed to trade and hold above 2400 in the September contract. As the old lows were tested the past few sessions, on Tuesday 2200 was broken. Demand has been a long-term issue for cocoa even before the virus spread but now that less cocoa is needed for consumption the bottom could be unknown. Will 2000 be the next downside target? If more re-openings are paused, indoor restaurant seating remains closed and sporting events are delayed any further “food” commodities could continue to take a big hit.

Food companies remain positive that the markets will turn around, demand will return, and things will go to a new “normal” once the pandemic is under some control. But for the time being, it appears we are a long way from that.

Bearish traders may want to look at long puts in the front months. Traders who anticipate a recovery will want to look further out, 2021 options for example, to have exposure once the softs recover.

Cocoa Sep ’20 Daily Chart

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.