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Cocoa Jumps on Concerns of El Niño, Bean Quality

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03/20/2017 | 10:03pm CEST
By Carolyn Cui 

Cocoa futures soared 5% on Monday, marking the largest one-day gain in five years, as traders added to their bullish bets on concerns about cocoa supplies.

New York cocoa for May delivery jumped 5.1% to settle at $2,116 a ton on the ICE Futures U.S. exchange. Monday's move represented the most active contract's largest one-day percentage increase since March 2012.

Reports of poor cocoa bean quality in Ivory Coast and other African growing countries, along with forecasts of a likely comeback of El Niño, a weather pattern that had disrupted cocoa production less than a year ago, finally ignited a bullish reaction in the cocoa market, which was one of the worst-performing commodities last year.

"I think it was just overdone with how much we have sold off," said Peter Mooses, senior market strategist at RJO Futures.

Prices were beaten down by prospects of big production in West Africa, the world's largest growing region. Since late-2015, cocoa lost more than 40% before hitting a multiyear low in early March.

In recent days, news reports suggested that port arrivals in Ivory Coast could fall in coming weeks as more cocoa beans were rejected by export companies due to small size and poor fermentation. Farmers held on to the cocoa beans longer than previous years as prices tumbled, causing the quality to deteriorate.

"Now, we're getting some news that the big productions there are seeing some damage; that's driving the prices to move higher," Mr. Mooses said.

On the other hand, the Australian Bureau of Meteorology said that six of eight models it tracked suggested that an El Niño may develop in July. The weather changes that are associated with El Niño tend to affect crops in the tropical Pacific region, such as cocoa, sugar and rice.

Some of the buyers seemed to be attracted back to the market. In the week ended March 14, agricultural markets as a whole saw a record reduction of net long positions of 223,374 contracts over the previous week, but cocoa bucked the trend, gaining 1,033 net long positions during the week, according to Rabobank.

On Monday, Mr. Mooses said that he saw speculative traders enter the market, betting on prices to rise further.

In other markets, raw sugar for May lost 2.6% to settle at 17.70 cents a pound, arabica coffee for May added 2.3% to close at $1.4525 a pound, frozen concentrated orange juice for May rose 1.1% to settle at $1.8285 a pound, and May cotton shed 1.3% to end at 77.33 cents a pound.

Write to Carolyn Cui at [email protected]

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