Cocoa is the loser in agricultural commodities

Cocoa prices fell drastically yesterday [14/11], snapping previous gains and closing significantly lower. Sterling’s sharp rise on Tuesday triggered long-term liquidation in London cacao, which was followed by profit-taking in New York cocoa. Stop-loss selling increased as prices fell further, and cocoa prices closed sharply lower.

Cocoa prices have received support recently, due to a decline from limited cocoa supply and concerns that current cocoa production is unable to fulfil supply to avoid a global deficit. The previous strengthening of cocoa prices was also influenced by heavy rainfall in most of the major cocoa producing countries in Africa, which led to plant diseases, resulting in reduced yields and diseases of the fruit, leaf shoots and tree trunk.

Throughout 2023, cocoa prices dominated the peak of agricultural products by rallying more than 58% as of January 2023. On Tuesday’s trading, Cocoa recorded a 45-year high of 4106, before plummeting dramatically to just above 3900. The agricultural commodity’s  bullish trend started with the breakout of the 2417 high price in November 2022. Despite a few corrections, due to the global supply glut, the price has not reversed to touch the 200-day EMA even once. And of course, this is influenced by long-term concerns due to the El Nino severe weather.

The decline technically hasn’t signalled any continuation yet, despite appearing in a daily bearish engulfing pattern, but there could be a few corrections to neutralise the price. On the downside the 3758 resistance being the support and the 26-day EMA (red-line) will resist the bears’ attempt to rule the roost. It is in the 50%FR range of the 3369-4106 drawdown. A trend change will only occur if the move is on the lower side of the important support 3369, and that takes time. Since agricultural commodities such as cocoa are heavily influenced by the weather, as well as shipping factors, the price tends to hold. RSI does indicate overbought, even MACD also indicates the same. Investors will likely tend to wait for some movement to the downside, before bidding to buy again.

The International Cocoa Organisation (ICCO) reported that global cocoa production in 2022/23 increased +2.4% y/y to 4,938 MMT, and global cocoa grindings increased +0.2% y/y to 5,005 MMT. They forecast global cocoa stocks at the end of the 2022/23 season at 1,707 MMT and the cocoa stocks-to-grindings ratio at a 7-year low of 34.5%. ICCO projected a global cocoa deficit in 2022/23 of -146,000 tonnes and said the expected supply deficit has been exacerbated by weather variations, particularly in West Africa.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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