COCOA rebounds 20% from the local lows after the biggest 2-day selloff since 1960

Cocoa futures, have lost more than 27% over the past two sessions, approaching a record two-day low, dating back to 1960. The near 20% rebound from the local lows may signal that while liquidity is tight and the market remains concerned about supply constraints on the commodity as West Africa, which accounts for more than half of the world's supply, grapples with weather challenges, an aging tree crisis and plagues that limit cocoa harvests. Cocoa futures are currently gaining nearly 3% and have already managed to rebound nearly 20% from yesterday's local monthly minima near $7700 per ton.

• Agricultural products analysts at Marex Group have signaled that speculative moves in the cocoa market are disconnected from the market's supply and demand balance; rather, they have to do with the dynamics of supply hedging and scarce liquidity. The big jump in cocoa prices earlier this year meant that investors hedging their positions with short positions had to deposit more funds, covering massive margin calls, acting like an insurance policy;

• The mass closing of short positions reduced the number of open contracts, reducing liquidity. According to J.P. Morgan, this has made it difficult for many chocolate companies to hedge supply in the futures market. Despite this, however, shares in Barry Callebaut (BARN.CH), the largest global conglomerate linked to the chocolate market, managed to recover losses and are trading near CHF1,500 per share, the highest since December 2023. The market, despite high cocoa prices, is not worried about demand destruction.

COCOA (M30)

Source: xStation5