🍫Cocoa Retreats from Monthly High

The price of cocoa is experiencing a sharp pullback after a period of robust gains spanning late November and early December. This earlier rally was fuelled by renewed forecasts of a supply surplus for the entire previous season and persistent uncertainty surrounding current harvest levels. Furthermore, the current price is approximately half the level recorded in December 2024, when expectations for cocoa yields in African nations were highly pessimistic.

Currently, not only have the harvest prospects on the continent improved, but production outlooks in Latin American countries are also rapidly increasing. Ecuador could potentially become the world's second-largest cocoa producer as early as next year, displacing Ghana. The position of Côte d'Ivoire as the production leader, however, remains relatively secure. The latest data on cocoa deliveries in the current season show a "supply surplus" compared to the previous season for the first time. The weak deliveries at the beginning of this season were primarily due to transportation issues.

Equally significant at the start of this week is the news that the Government of Côte d'Ivoire has authorized the local regulator, Le Conseil du Café-Cacao (CCC), to purchase approximately 200,000 tonnes of cocoa from farmers. This intervention aims to rescue local exporters who, facing falling prices, threatened to default on forward contracts entered into at higher levels. The purchases are intended to unblock ports and mitigate a wave of bankruptcies among exporters, but the CCC will subsequently have to sell these beans on the international market, implying a potential future influx of supply. Currently, local exporters have ceased purchasing beans from farmers, as they hold previously acquired inventory which they now must sell cheaper on the international market than their original purchase price.

The commodity’s price is retreating today to the $6,000 level, after having tested the three-month moving average and a one-month high at the end of last week. The $5,750 per tonne area currently acts as a critical technical support level for prices.

It is also worth noting that the latest CFTC data, which remains slightly delayed (available for November 18th), showed that the number of non-commercial short positions exceeded long positions. This is the first time this has occurred since 2022, when it served as a strong contrarian signal. However, the total number of open positions was several times greater then than it is today.