Fund buying has dominated the cocoa futures market the past two weeks, sending prices to their highest level in months.

Fundamentally speaking, there does not seem to be enough fuel to have sparked the $200 rally and keen interest coming from the speculative community. Weather has been normal, bringing a good mix of sufficient rains for proper crop development and enough sun to dry and export beans. Cumulative arrivals are indicating a record crop from Ivory Coast, and all signs are pointing toward a midcrop of at least 500,000 MT of additional cocoa.

Although first quarter grinds were all positive and showed constructive demand, most analysts are expecting a small surplus in the current crop year (not a deficit). Thus, the rapid rise in price on back of enthusiastic fund buying seems to lack fundamental rationale.

It is almost as if the silly season has arrived one month early and has many now on the sidelines unwilling to chase the irrational exuberance any higher. The cocoa market may be poised for a lower correction as technicals have become overvalued on zealous fund buying.

Cocoa futures vs. noncommercial trader net position

Source: CFTC, DTN
Posted by: Information Services
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