Cocoa price plunges by nearly 30% in just two days as speculators bail out

By Jamie Chisholm

Futures contract's Tuesday decline eases by morning trading hours in New York

The commodities market is offering a sharp lesson in the dangers of momentum trades and parabolic moves.

The ICE July cocoa contract at one point early Tuesday had plunged 12.5% to $7,812 a metric ton, adding to a 15.7% loss on Monday, the biggest one-day fall ever, as speculators bailed out.

The sharp two-day reversal has come as a jolt to cocoa bulls, who have participated in one of the commodity sector's most spectacular runs of recent years.

The price of cocoa hit a record high above $11,000 a metric ton earlier this month as poor harvests in west Africa, particularly the Ivory Coast, delivered a supply crunch while demand for the commodity, the essential ingredient for chocolate, remained sturdy.

From the archives (March 2024): Could a looming chocolate crisis shake Easter after cocoa prices doubled?

At its peak, less than two week's ago, the bean's price was up 173% since the start of the year, as the demand from chocolatiers was joined by a surge of speculative interest.

However, the parabolic move in cocoa's price has succumbed to gravity.

Ole Hansen, head of commodity strategy at Saxo Bank, noted how last week traders were already exiting "an increasingly disorderly market," pushing net long futures positions to a 14-month low.

And after cocoa futures stopped rising, it seemed more traders were cashing in their chips, as the cost of holding contracts rose, with others possibly taking fresh short positions.

"Cocoa futures tanked ... on higher margin calls and forced liquidations in the continuation of a selloff that started last Thursday on news that Nigeria, which is the world's fifth biggest cocoa producer, said that its exports rose nearly 20% in March. Hallelujah!" said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank and an evident chocolate lover.

However, analysts noted that, with no fresh production news from the big growers impacting cocoa, it was likely that once speculative froth was removed from the market the scramble to secure the ingredient would continue to underpin prices.

"Is there a concrete bit of news that drove the market here? No," said Jonathan Parkman, head of agricultural sales at Marex, told Reuters.

Indeed, by morning in New York, the ICE July contract had recovered from its lows to trade at $8,773, down just 1.8% on the day.

-Jamie Chisholm

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04-30-24 1018ET

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