Cocoa Rebounds 3.5%

Cocoa prices are bouncing back after yesterday's sharp sell-off, which saw prices hit an eight-month low. The previous day's decline was primarily driven by very weak processing data from Europe, followed by equally poor figures from Asia and North America.

North American processing fell by nearly 3,000 tonnes to 101,800 tonnes, representing a 2.8% year-on-year decline. Asian processing recorded a significant 16.27% year-on-year drop to 176,600 tonnes, marking the lowest processing level since 2017. This also represents a substantial decrease from the previous quarter's 213,000 tonnes.

The current price rebound is most likely a technical reaction, as no new information has emerged. While the supply situation is improving, it remains tight. The recent price declines have been largely attributed to the dismal demand situation, exacerbated by excessive price increases.

Inventory Dynamics and Historical Context

Although current inventories remain significantly below the five-year average and even the five-year minimum, the pace of inventory recovery has been robust in recent years. This recovery dynamic is comparable to 2021, when a local trough was established at the end of July. The subsequent price rebound then reached up to 20% and lasted until early October. However, it's worth noting that prices at that time were trading within the $2,200-$2,800 per tonne range. Source: Bloomberg Finance LP

Last year, prices also began to rebound towards the end of July. Furthermore, both the five-year and long-term seasonality trends suggest a rebound around mid-August. Source: Bloomberg Finance LP, XTB

Technical Outlook and Key Levels

Today's price rebound saw cocoa trade up by as much as 3.5%. However, the closing of the gap and the subsequent reduction in gains could indicate that today's bounce was merely profit-taking after the recent sharp declines. Key resistance levels for cocoa include the downward trend line and the $8,000 per tonne zone. A sustained move above these levels could signal a trend reversal. Currently, however, the trend may lead prices lower, into the $6,700-$7,000 range, where prices rebounded several times in 2024. It is worth noting that we are still not observing any positive reaction in speculative positioning. Source: xStation5