By Joe Hoppe
Cocoa futures fall for the second consecutive session, in a sign that its monthslong rally might have finally broken.
Futures fell 6% to $8,396 a ton, having reached as low as $7,756 earlier in the session. They have fallen nearly 19% over the past week, but have still doubled in price over the year to date, setting a record of $11,722 on April 19.
Monday saw a price slump of 16%, and while there was no specific trigger for the abrupt fall, a large correction is unsurprising, said Commerzbank analysts in a note.
A combination of factors potentially explain the slump.
Cocoa's incredible rally was driven by supply-side challenges in West Africa, where 70% of global cocoa is produced. Rains in West Africa have increased the outlook for the mid-season crop, Saxo Bank's head of commodity strategy, Ole Hansen, told Dow Jones Newswires.
Market forces--including a massive number of speculative positions--may also have played a role in the sharp sell-off.
"Cocoa futures tanked [Monday] 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," Ipek Ozkardeskaya, senior analyst at Swissquote Bank said to Dow Jones Newswires.
Now, prices might retreat and settle at reasonable levels in the medium run, Ozkardeskaya said.
Write to Joe Hoppe at joseph.hoppe@wsj.com
(END) Dow Jones Newswires
04-30-24 0820ET
