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Cocoa Futures: Is Cocoa Being Oversold?

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Cocoa was the latest commodity to join the selling frenzy this week, but the fundamentals that underpinned its performance in 2015 will likely keep it buoyant, despite some negative numbers emerging from the industry. Some funds were exiting cocoa futures this week in an effort to achieve liquidity and meet redemption demands.

It was a surprising move for cocoa, which has seen harvests in West Africa blighted by fungus, and where cocoa insiders continue to stress that without proper investment in farming and infrastructure by the governments of Ivory Coast and Ghana, the cocoa industry will fail to meet demands from the chocolate industry.

Analysts in London and New York called the harvest too generously in 2015, and will likely do so again in 2016. The sale of cocoa futures in the market this week does not reflect the fundamentals that apply to this particular market. Hence, we have seen some buying of cocoa by more seasoned traders going into the weekend.

Cocoa was trading at $2,810 per tonne at time of writing, Friday 22 January. Part of the sell off came from more positive harvest forecasts coming from Ghana, and the expectation on the part of some chocolate makers that their market will look more depressed in 2016.

Some traders were also speculating this week that sell stops were being triggered in several soft commodities markets. These stops were possibly put in place by traders who were not expecting cocoa futures prices to take a 4.5% beating.

We’ll be returning to the cocoa industry with further in-depth commentary and insight on the fundamentals affecting cocoa futures prices.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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