Cocoa Crash Unfolds As "Liquidity Evaporates"
Cocoa futures in New York crashed Monday in their biggest daily drawdown on record, driven mostly by improved weather forecasts and sliding liquidity.
"Cocoa prices are melting down. New York and London cocoa futures are down ~15% today (that's, by far, the largest one-day % drop in data going back nearly 65 years)," Bloomberg's Javier Blas wrote on X.
CHART OF THE DAY: Cocoa prices are melting down. New York and London cocoa futures are down ~15% today (that's, by far, the largest one-day % drop in data going back nearly 65 years). #cocoa #chocflation https://t.co/hzcOgHkC2U pic.twitter.com/a3BxC9XjCw
— Javier Blas (@JavierBlas) April 29, 2024
Futures fell 15% to $8,931 a ton, having hit a record high of $11,722 on April 19.
On April 9, during the surge from $9,000 to nearly $12,000, Blas warned: "Liquidity in cocoa markets is quickly evaporating."
Saxo Bank's head of commodity strategy, Ole Hansen, explained to Dow Jones Newswires that today's selloff was triggered by an improving weather forecast for rain in West Africa, the mecca of cocoa farming. This will only boost the bean outlook for mid-season crops. He also noted that the front contract showed strong signs of 'buyer fatigue.'
"Liquidity in the market due to the intense volatility of cocoa's prices has also disappeared, so any kind of news--good or bad--will trigger strong fluctuations in price," Hansen said, adding that the latest commitment of traders report exhibited broad selling from commercial traders, with the long exposure sliding to a 14-month low as traders panic exit the chaotic market.
Despite the cocoa plunge, London-based trading and agricultural consultant Paulo Torres told Bloomberg, "The shortage is not over" and "the elephant in the room is the fact that Ivory Coast and Ghana do not have cocoa, so there is no way prices can fall significantly."
