Cocoa prices experienced a downturn on Wednesday, adding to a week marked by volatile trading patterns driven by reduced market liquidity, leading to more pronounced price swings.
In New York futures trading, cocoa prices plummeted by up to 11%, reversing earlier gains observed earlier in the day. ‘
A severe shortage in supply, attributed to unfavorable harvests in West Africa, has propelled the price of the most active contract to record levels nearing $12,000 a ton last month.
This surge has escalated the cost of maintaining positions, prompting traders to withdraw from the market, thereby constraining liquidity and exposing cocoa to significant price fluctuations.
Jack Scoville, Vice President at Price Futures Group, suggested that while the recent downward movements are amplified by low liquidity, they may primarily signify a corrective phase, with prices potentially returning to near-record highs.
He emphasized that the market’s ability to sustain or surpass these levels will provide insight into whether the shift represents a long-term directional change or merely a short-term correction.
Wednesday’s decline follows a tumultuous start to the week, during which cocoa futures experienced a momentous 27% decline at one juncture, indicating the largest two-day drop on record before rebounding to close higher on Tuesday.
Judy Ganes, President at J. Ganes Consulting, noted that to reignite a rally toward record highs, the market might require a catalyst such as adverse weather conditions. She highlighted that the current shortage had already been factored into prices.
Ganes emphasized that sustaining bull markets necessitates continuous stimuli, and the recent surge has resulted in a vacuum due to a dearth of new buyers.
She cautioned against trying to “catch a falling knife,” implying that potential buyers may opt to stay on the sidelines until market conditions stabilize.
