SUPERNEWS

Macro

Cocoa Crashes 26%, Gold & Oil Soar Amid Market Shifts

Cocoa prices plummet 26% in two days, contrasting with surges in gold and oil markets amid market volatility and increased margin requirements.

By Barry Stearns

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4/30, 05:29 EDT
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Key Takeaway

  • Cocoa prices plummeted 26% in two days, erasing gains from a historic rally, with the most-active contract dropping to $7,756 a ton.
  • The sharp decline follows a record-breaking rally, highlighting extreme volatility in cocoa markets.
  • Aggregate open interest is near its lowest in over a decade, indicating reduced trading activity.

Cocoa Market Turbulence

Cocoa prices have experienced a significant slump in both London and New York markets, with a dramatic 26% drop over two days, marking a stark reversal from a record-breaking rally. The most-active contract plummeted as much as 13% to $7,756 a ton in New York, following a 16% drop the previous day. This decline was mirrored in London with a 12% fall. The volatility is attributed to a decrease in the number of outstanding contracts, hitting a decade low, signaling a withdrawal of traders from the market due to increased margin requirements by the Intercontinental Exchange Inc. This has led to fewer companies being able to afford the rising costs to back their trades, contributing to the market's instability.

Gold and Oil Markets Surge

In contrast to the volatile cocoa market, gold and oil markets have seen significant surges. Gold prices have reached record levels, with Newmont Corp., the world's largest gold producer, planning to produce 6.93 million ounces this year after its acquisition of Newcrest Mining Ltd. for $15 billion. This bullish outlook in the precious metals sector is complemented by the anticipated start of commercial operations of the Trans Mountain pipeline expansion in Canada, which aims to transport an additional 590,000 barrels of oil per day. This project is expected to redirect oil flows from California to China, marking a significant shift in global energy distribution.

Cocoa and Copper Demand Fluctuates

The cocoa market's extreme volatility contrasts sharply with the surging demand for copper, driven by the burgeoning needs of electric vehicles (EVs), grid infrastructure, and data centers. BHP's $39 billion bid for Anglo American Plc underscores the critical need for increased copper production. However, the cocoa market has seen decreased liquidity and heightened price fluctuations, with potential price swings reaching up to $15,000 a metric ton. This volatility is partly due to the severe shortage of cocoa from Ivory Coast and Ghana, exacerbated by bad weather, older trees, and crop diseases affecting West Africa, which accounts for more than half of global supplies.