Cocoa futures soar, amid talk of Cote d'Ivoire forward selling spree

31.05.2017
Cocoa futures soared 6% on a wave of short-covering fuelled by talk that Cote d'Ivoire had sold forward the equivalent of some 20% of world production, besides reports of poor weather for the country's mid-crop harvest.
 
Cocoa futures for July closed up 6.6% at $2,037 a tonne in New York, settling above their 100-day moving average for only the third time in nine months.
 
The London July cocoa contract ended 5.8% higher at £1,582 a tonne, climbing back above its 50-day moving average.
 
The jumps were attributed to short-covering, given the extent focus of trading volumes on the July contracts, which in New York attracted more than twice the volume of the September lot, which in turn witnessed more than twice the trading volume that the December contract did.
 
"The front contracts are where we have the large non-commercial short," Jonathan Parkman joint head of agriculture at Marex Financial, told Agrimoney.com.
 
'Silly season'
 
The trigger for the buying looked down "in part" to reports of heavy rain last week in Ivory Coast, provoking concerns for the mid-crop harvest which began last month, a New York-based trader said.
 
The rains have raised concerns of crop losses, besides transport disruptions, although "in fact, speaking with people on the ground, the situation does not look that bad," the trader said.
 
"Still, at this time of year, we are getting into the silly season for cocoa," with the deliveries of the bean tending to slow down later in the summer, before the start of the main crop in October.
 
'Huge amount'
 
However, the trader also stressed a weekend report that Cote d'Ivoire had sold forward direct to users some 950,000 tonnes of cocoa for 2017-18 for a price of 1,200 CFA francs per kilogramme, equivalent to about $2,040 a tonne.
 
The country paid farmers 1,100 CFA francs for main crop cocoa this season, although cut the payout to 700 CFA francs for the mid-crop.
 
"That is a huge amount, if it is true," the trader said, with a volume of that size equivalent to half of the country's output for this season, as estimated by the International Cocoa Organization.
 
The ICCO estimates world output for 2016-17 at 4.55m tonnes.
 
"It means next year should anything go wrong with world production, there will not be the volumes there to be hedged," in terms of volumes available through the market.
 
'I would be gobsmacked'
 
However, at London-based Marex Spectron, Mr Parkman was less convinced of the implications of forward selling of that size by Cote d'Ivoire.
 
"I would not be surprised if Cote d'Ivoire had forward sold 950,000 tonnes of cocoa," he said.
 
"However, I would be gobsmacked if 950,000 tonnes had been hedged."
 
It was a "mess" over forward selling for 2016-17 which had been behind the tumble in cocoa prices earlier this year to 10-year lows, when the country was forced to reoffer beans, after original buyers walked away from contracts when the price falls made the deals unprofitable.
 
Sometimes the cocoa market is vulnerable to large price moves thanks to fund shifts which may have no obvious cause in supply and demand fundamentals, Mr Parkman said.
 
 

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