A husbandman cutting a cocoa pod to cod the beans wrong connected a workplace successful Azaguie, Ivory Coast, connected Friday, Nov. 18, 2022.
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Cocoa's winning streak is faltering aft prices fell to an astir two-year debased this week — but concern banks are informing the commodity has go "extremely oversold."
U.S. cocoa futures for December transportation moved 1.4% little connected Wednesday to commercialized astatine astir $6,090 a ton, extending losses that saw the contracts suffer 10% of their worth successful the week ended Oct. 3.
It marked a alteration successful trajectory for cocoa, which has seen prices stay elevated for the past 2 years. U.S. futures deed a precocious of $12,931 successful mid-December — but this week, prices touched connected their lowest levels since aboriginal 2024.
Cocoa futures
Challenging cultivation conditions, pest infestations and West African export controls person pushed the terms of cocoa higher successful caller years — but the upward trajectory came to a halt implicit the past week arsenic governments successful the Ivory Coast and Ghana hiked the minimum terms payable to cocoa farmers.
'Extremely oversold'
In a Monday note, analysts astatine concern slope Citi said wealth managers were taking a "historically anemic spec [speculative] positioning" connected cocoa — adding that their information showed "weak momentum" and an "oversold signal" for the commodity.
Analysts astatine Societe Generale besides said connected Monday that cocoa contracts traded successful London had been "extremely oversold."
"Money managers turned nett abbreviated this week," they said successful a enactment to clients. "[Cocoa is] highly susceptible to abbreviated covering … Money managers' abbreviated positioning [has] accrued to the highest level since August 2022."
In New York, they added, cocoa is besides susceptible to abbreviated covering, though not to the aforesaid extremes arsenic London contracts.
Short covering happens erstwhile investors bargain backmost a borrowed plus to adjacent retired abbreviated positions — which tin pb to a nett oregon a loss. If prices rise, a unreserved to adjacent abbreviated positions tin pb to a abbreviated compression wherever traders heap backmost into the asset, pushing prices higher.
J.P. Morgan strategists wrote successful a enactment this week that signs of a betterment were already emerging.
"Cocoa markets sank sharply done the week aft farmgate prices were raised by the governments successful the Ivory Coast and Ghana, driving 1 of the sharpest play losses of the twelvemonth … pursuing caller harvest shaper sales," they said.
But they added: "Aggregate futures and options unfastened involvement crossed the cocoa marketplace is rising disconnected historical lows backmost to levels of February 2025."
Back successful February, U.S. cocoa futures periodically traded supra the $10,000 mark.
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