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Cocoa Whipsaws to Close One of the Wildest Weeks Market Has Seen - BLOOMBERG
BY , Bloomberg News
, ICE Futures US; Bloomberg
(Bloomberg) -- Cocoa futures whipsawed while still on track for its biggest weekly slump on data going back to 1959, as it wraps up one of the craziest stretches the market has ever seen.
“The current market is being impacted by factors beyond supply and demand,” Hershey Co. Chief Executive Officer Michele Buck said Friday in prepared remarks. Lack of liquidity, new regulations, and market speculation have all contributed to the price shifts, the executive added.
The most-active contract climbed as much as 3.5% in New York on Friday, as an easing US dollar boosted the appeal of commodities priced in that currency. Still, the plunge this week took futures to move more than 30% below the recent all-time high reached on April 19, as markets face extreme price swings after an exodus of traders sapped liquidity.
The pullback has marked a stark turnaround for cocoa, which had become more expensive than copper. Prices soared as poor harvests in West Africa left the world facing a third year of shortages, stressing buyers and making chocolate pricier. But the wild run has also made it costlier for traders to maintain their positions, prompting many to walk away.
The cash crunch is hitting the physical market by forcing traders to delay purchases from the top producers, Bloomberg reported this week. Buying more beans would require them to hedge their purchases in the futures market, just as bigger volatility means they need to put up more cash to cover margin calls.
Read More: Hershey Sales Get Boost From High Prices Amid Cocoa Shortage
“It’s important to underscore that the recent downturn in cocoa prices is primarily a result of trading maneuvers, not a realignment of market fundamentals,” analysts at Fitch Solutions’ BMI unit said in a note, adding they expect volatility to persist.
Recent rain that could aid crops in West Africa may be weighing on prices. Still, more is needed to fully ease dryness in the region, according to forecaster Maxar Technologies Inc.
An increase in farmer prices should also enable them to make more investments in fertilizer, pesticides, and other techniques to improve yields, Hershey’s Buck said.
Unprecedented Volatility
Volatility spiked as bigger margin requirements spurred traders to close out positions, helping to drive aggregate open interest, or the number of outstanding contracts, in New York cocoa to the lowest in more than a decade. That has left the market more vulnerable to huge price swings like those seen this week.
In other soft commodities, robusta coffee futures in London fell on Friday to the lowest in a month, with rains in top shipper Vietnam and signs of rising stockpiles easing supply concerns.
--With assistance from Celia Bergin.
