Cocoa prices experienced a sharp decline, plummeting 10% in both New York and London markets.
This sudden drop was fueled by increased margin calls and uncertainty surrounding a historic supply crunch, leading to a mass exodus of traders and resulting in unpredictable price fluctuations.
According to Bloomberg data, the most active contract fell a whopping 10% to $9,510 a ton in New York, continuing a downward trend that began last week.
This marked the largest intraday drop since 2008, with the market now entering a correction phase after futures dropped approximately 18% from a record high reached on April 19.
The slump is attributed to a decline in outstanding contracts and aggregate open interest, which is nearing its lowest point in over a decade.
StoneX analyst Leonardo Rossetti notes that increased margin requirements and reduced outstanding contracts create an environment conducive to trend reversals, with fewer players driving more abrupt movements.
Although rains in West African growing areas may provide some relief for the upcoming mid-crop harvest, the severe shortage that has led to a third year of deficits remains a significant concern.
Money managers continue to trim their net-long positions, and the wetter weather only adds to the lack of new bullish events.
Consultant Paulo Torres emphasizes that the shortage is far from over, citing the significant issue that Ivory Coast and Ghana lack cocoa, making significant price drops unlikely.
“The shortage is not over. 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.”
