Cocoa prices experienced a sharp decline over the last couple of sessions, effectively halting the recent upward trajectory observed since mid-April.
This downturn suggests a potential shift in market sentiment and could indicate the conclusion of the previous bullish phase.
Factors such as supply forecasts, demand expectations, and macroeconomic conditions will likely play a crucial role in shaping future price movements in the cocoa market, according to experts.
Cocoa prices continue to fall
Cocoa futures continued to fall on Wednesday.
On the Intercontinental Exchange (ICE) in New York, the price for cocoa futures contracts retreated, falling below the USD 9,000 per ton mark.
Simultaneously, the London ICE market also witnessed a downward trend, with cocoa futures dropping to GBP 6,245 per ton.
Last week’s reports of abundant rainfall across the growing regions of the Ivory Coast, which stands as the world’s leading producer of this commodity, served as the primary catalyst for recent market movements, according to Carsten Fritsch, commodity analyst at Commerzbank AG.
This news significantly impacted expectations for the upcoming harvest, suggesting a potential increase in supply.
Ample rainfall in Ivory Coast
The Ivory Coast’s dominant role in global production means that weather patterns in this region have a substantial influence on worldwide availability and pricing.
The expectation of ample rainfall alleviated previous concerns about potential drought or insufficient moisture, which could have negatively affected crop yields.
Consequently, the anticipated boost in production due to favorable weather conditions led to a notable shift in market sentiment and likely contributed to adjustments in futures prices and trading activity related to this agricultural product.
“This has improved the prospects for the current mid-crop,” Fritsch said in a report.
According to a Reuters report, Ivory Coast ports have received 1.5 million tons of cocoa between the start of the crop year last October and April 27.
Fritsch added:
This represents an 11% increase compared to the corresponding period last year, which was marked by severe drought.
Initial positive sentiment surrounding cocoa prices stemmed from first-quarter grinding data from Europe, Asia, and North America that, while still indicating a decline in processing activity, did not represent as severe a contraction as market participants had anticipated.
This relative resilience in demand offered a degree of support to prices previously, suggesting that consumption was not collapsing as drastically as some forecasts had suggested, according to Commerzbank.
Cocoa grindings
European cocoa grindings in the first quarter were down 3.7% year-on-year, marking an eight-year low for this period, according to the German bank.
Asia also saw a decrease of 3.4%, and North America experienced a 2.5% decline.
Despite elevated prices, the market did not experience as significant a drop as many had anticipated.
While cocoa grinding figures might suggest strong demand, Commerzbank said there was a recent accumulation of cocoa powder and cocoa butter inventories.
This buildup implies that the actual consumption of cocoa in its processed forms may not be as robust as indicated by the grinding data.
The discrepancy between grinding figures and inventory levels could stem from various factors, such as manufacturers producing more than end consumers are currently demanding, or a potential slowdown in downstream product sales.
Fritsch added:
Thus, the previous price increase might have been on shaky ground, which is already hinted at by yesterday’s price decline.
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