On Friday, November 18th, 2022, a farmer cuts cocoa pods and collects the beans inside at a farm in Azagier, Ivory Coast.
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Cocoa’s winning streak has been sluggish this week as cocoa prices fell to their lowest level in almost two years, but investment banks have warned that the product is “extremely sold.”
US cocoa futures The December delivery price fell 1.4% on Wednesday at around $6,090 per tonne, trading at around $6,090 per tonne, with losses growing and 10% of the contract value in the week that ended October 3rd.
This has changed the trajectory of cacao, which has remained high for the past two years. The US futures market hit a high of $12,931 in mid-December, but this week reached its lowest level since early 2024.
Cocoa futures
The price of cacao has been rising in recent years due to strict agricultural conditions, pest spread and West Africa’s export restrictions, but this upward trajectory has stopped in the past week as governments in Ivory Coast and Ghana have raised the lowest prices paid to cacao farmers.
“It’s very oversold”
In a memo on Monday, an analyst at Investment Bank City said the cacao had “hirl. speculative positioning” and added that the data showed the product’s “weak momentum” and “overselling signals.”
Analysts at Societe General also said on Monday that the cocoa contract traded in London was “oversold at an extreme rate.”
“Money managers have been net short this week,” he said in a customer memo. “(Cocoa) is very vulnerable to short covering… Money Manager’s short positioning has increased to the highest level since August 2022.”
They added that cacao is also vulnerable to short covering in New York, although not as extreme as the London contract.
Short covering occurs when investors buy back borrowed assets to resolve short positions, which can lead to profits or losses. When prices rise, if you rush to resolve short positions, traders can experience short squeezes that increase their assets and push up prices.
JP Morgan strategists said in a memo this week that signs of recovery are already showing signs of recovery.
“After the governments in Ivory Coast and Ghana raised farmgate prices, the cocoa market plummeted throughout this week, causing one of the most sharp weekly losses this year, following sales from new crop producers,” they said.
However, he added, “futures and options open interest across the cocoa market have risen from historic lows and are beginning to return to levels in February 2025.”
Back in February, US cocoa futures prices were regularly traded at levels above $10,000.
