By Joe Hoppe


Cocoa futures dropped for the third consecutive session as falling liquidity increased volatility in prices.

Futures fell 8.6% to $7,572 a metric ton, having reached as low as $7,550 earlier in the session. They have fallen nearly 30% over the past week, but are still up 83% over the year to date, setting a record of $11,722 on April 19.

However, Tuesday saw a price slump of nearly 11%, despite little changing fundamentally in the cocoa market, ING analysts said in a research note.

In West Africa, where about 70% of global cocoa is produced, powerhouses Ivory Coast and Ghana are facing catastrophic harvests on adverse weather conditions and disease, prompting a monthslong rally in prices.

The International Cocoa Organization--a global body of cocoa producing and consuming countries--said in its latest monthly report that it expects the global supply deficit to widen to 374,000 metric tons in the 2023-24 season, from 74,000 tons last season, the third consecutive year of deficits.

The slump in prices, instead, reflects lower market liquidity. An increase in initial margins has made it more expensive to trade cocoa, while increased volatility also means the risk of a large variation in margin calls, ING analysts said.

Aggregate open interest in London cocoa now stands at just under 2.3 million tons, the lowest level since June 2021.


Write to Joe Hoppe at joseph.hoppe@wsj.com


(END) Dow Jones Newswires

05-02-24 0633ET