Cocoa futures in New York and London plummeted by nearly 17%, and as fewer companies can afford rising costs to support their trades, the market is prone to large price fluctuations.
In the New York market, the most active gold contract once fell to 8,800 US dollars per ton, continuing last week's decline. This is the biggest one-day drop since 1960. The market is very volatile. Prices are falling today and rising again tomorrow. Overall, futures prices are down about 25% from the record high set on April 19, and have more than doubled since this year.
Intercontinental Exchange Inc. (Intercontinental Exchange Inc.) has raised the capital the company needs to invest to support its positions several times, causing traders to leave the market one after another. Compiled data shows that the total amount of open contracts in New York is close to its lowest level in more than 10 years.
In London, commodity prices fell last year because Côte d'Ivoire acted to reimburse shippers for losses caused by unexpected increases in prices paid to farmers to avoid a wave of cocoa export defaults.
Leonardo Rossetti, an analyst at StoneX, said that the increase in trade margin requirements and the drastic reduction in the number of outstanding contracts “opened up more room for trend reversal, and the reduction in participants made it easier to drive more intense fluctuations.”
As rainfall in West African growing regions may provide some benefits to the region's upcoming mid-term harvest, the supply of beans may be mitigated somewhat. While the severe shortage caused the market to be short for the third year in a row this quarter, wetter weather exacerbated the lack of new bullish events as fund managers continued to cut net long positions.
“The shortage isn't over yet,” said Paul Torres (Paulo Torres), a London trade and agriculture consultant. “The 'elephant in the room' is a fact that Ivory Coast and Ghana have no cocoa,” he added.
Cocoa futures prices have more than doubled in the past year as bad weather, tree aging, and crop diseases hit West Africa. West Africa accounts for more than half of the world's cocoa supply. This made it difficult for buyers to obtain supply and forced Ivory Coast and Ghana to extend contracts for around 400,000 tons of cocoa, increasing supply constraints.