SUPERNEWS

Macro

Cocoa Surges 20% Amid Shortages, Hits $9,035 a Ton

Cocoa futures surge over 19% in two days amid severe shortages and market volatility, marking the biggest rally since 1999.

By Max Weldon

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5/8, 07:15 EDT
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Key Takeaway

  • Cocoa prices surged nearly 20% in two days, marking the biggest rally since 1999 amid severe market volatility and shortages.
  • Supply concerns persist with West Africa's crop damage and a three-year low in US cocoa stockpiles contributing to price swings.
  • Despite recent price hikes, Ivory Coast struggles to meet exporter demands for cocoa beans, further tightening global supplies.

Cocoa Market Whiplash

Cocoa futures in New York surged, marking a significant reversal from last week's slump, with a two-day advance of over 19%. This rally, the biggest since 1999, comes amidst severe shortages and heightened volatility in the market. Factors contributing to this volatility include increased margin calls, prompting traders to exit positions, thereby draining liquidity. Additionally, recent rains in West Africa have somewhat alleviated concerns about the mid-crop, but damage from previous heat waves has left farmers worried about the harvest's impact.

Supply Concerns and Price Movements

The world is facing another annual cocoa deficit due to poor harvests in West Africa, a crucial region for cocoa production. US port stockpiles of cocoa are at a three-year low, underscoring the supply crunch. The Ivory Coast, the top cocoa grower, has faced delays in supplies due to harvest setbacks. Despite the government's efforts to compensate exporters for rolled-over contracts, the full tonnage sought by shippers remains unmet, especially after a regulated price increase. Cocoa prices in New York jumped 4.9% to $9,035 a ton, following a more than 13% increase the previous day.

Market Dynamics and Regulatory Responses

The cocoa market's recent downturn saw futures in New York falling up to 6.9%, continuing a trend from the previous week's record 23% drop. This decline was exacerbated by increased margin requirements, leading to a bearish market sentiment. The Commodity Futures Trading Commission (CFTC) data highlighted a significant decrease in both long-only and short-only positions, indicating a shift in market dynamics. In response to these challenges, the Ivory Coast's CCC is considering reforms to stabilize the market, including potentially changing how exporters buy from farmers to secure supplies during tight conditions.