Consolidation in Cocoa Prices
September became the first month since March that December Cocoa Futures did not drop to $1830. Cocoa prices have been hovering in a range between ~$1800 and $2100 in the same period. There just doesn’t seem to be enough news (on either side) to break out of it. The recent rally (although littered with retracements) is the first sign of life for cocoa. Smaller fundamental and technical news (like currency, technical levels) have been bouncing cocoa around. Traders will be watching and waiting to see if this will be enough to bust out of the range.
Weather for last year’s main and mid crop was fantastic (Climatech really nailed this), causing the large drop in cocoa prices in 2017. Then, traders eyed the next rainy season, which began in May. Although there were some scares, a second summer of beneficial rainfall occured. It was too rainy at times, but the past few month made up for it, with a good mix of sun and showers. See the plentiful rainfall May-Sept below:
Source: NOAA, NCEP
The next 15 days are set to have below normal rainfall, allowing for a more expedite bean harvest.
Demand vs Surplus
Last year had a global surplus of 371,000 tons, the largest in over 17 years. Despite a slight delay in harvest due to political instability, most analyst are expecting an additional surplus this year. The International Cocoa Organization (ICCO) has noted that although Asia grindings have decidedly increased, those for Europe and America have been modest at best. Europe Cocoa Association will release its grinding statistics for the 3rd quarter on Wednesday.
UPDATE: The European Cocoa Association announced a 3% increase in 3rd quarter grindings from last year, above expectations (Wall Street Journal survey estimated 2.3%). Total grindings so far this year are the highest in 6 years.