Pilar Olivares/Reuters
Together, Ivory Coast and Ghana produce almost 60% of the world’s cocoa
World cocoa prices saw falls of around 20% in two days as technical triggers prevailed thanks to record low liquidity, with even hedge funds largely exiting the market during their stunning rise this year , said the traders.
Before this week’s drop, cocoa futures traded on the ICE exchange — and used as a benchmark for pricing beans around the world — had nearly tripled in value this year thanks to adverse weather and illness in major producers such as Ivory Coast and Ghana.
The rally left many physical market participants out of money and even drove away hedge funds, traders said, leaving the market in the hands of algorithmic “day trading” funds programmed to follow similar technical signals.
In the absence of liquidity, these funds exaggerate price movements, both up and down.
“Is there any concrete news that has driven the market so far? No,” said Jonathan Parkman, head of agricultural sales at Marex.
“New York’s position is minuscule, a record low in modern times. The lack of liquidity will move the market disproportionately in both directions,” she explained.
July cocoa futures in London traded on the ICE exchange fell almost 15% on Monday (29), their biggest loss in one day.
Prices were down about 4 to 7,392 pounds per metric ton at 9:50 a.m. EDT, while New York July cocoa futures lost 3% to $8,665 per ton, having lost almost 16% of their value. value on Monday.
The market is focused on the development of the Ivory Coast and Ghana harvest, something that will become clearer in the next two months, alerting investors about the possibility or not of a recovery next season.
The two countries together produce almost 60% of the world’s cocoa, and with their harvest prospects still unclear for now, there are no new fundamental factors driving prices, and supplies remain extremely tight.
ING noted that Monday’s price drop followed a move taken last week by the ICE exchange to increase initial margins on cocoa futures by 23% per contract. This increase is likely to further reduce liquidity.
“This was the third increase in margins this month. Higher margins and cocoa volatility have caused open interest to decline from around 400,000 lots in November to around 243,000 lots currently,” the bank said.
