A farmer cutting a cocoa pod to harvest the beans inside on a farm in Azaguie, Ivory Coast, Friday, November 18, 2022.
Bloomberg | Bloomberg | Getty Images
Cocoa’s winning streak is running out of steam after prices this week fell to their lowest level in almost two years – but investment banks are warning the commodity has become “extremely oversold”.
US Cocoa Futures Markets for December delivery fell 1.4% on Wednesday to trade at around $6,090 a tonne, extending losses that saw contracts lose 10% of their value in the week ended October 3.
This marked a change in trajectory for cocoa, whose prices have remained high over the past two years. US futures reached a high of $12,931 in mid-December – but this week prices hit their lowest levels since early 2024.
Cocoa futures markets
Difficult agricultural conditions, pest infestations and export controls in West Africa have driven up the price of cocoa in recent years – but the upward trajectory stopped last week when the governments of Ivory Coast and Ghana increased the minimum price payable to cocoa farmers.
“Extremely oversold”
In a note on Monday, analysts at investment bank Citi said fund managers were taking “historically low speculative positioning” in cocoa – adding that their data showed “weak momentum” and an “oversold signal” for the commodity.
Analysts at Société Générale also said on Monday that cocoa contracts traded in London had been “extremely oversold”.
“Fund managers went net short this week,” they said in a note to clients. “(Cocoa is) extremely vulnerable to short covering… Fund managers’ short positioning (has) increased to its highest level since August 2022.”
In New York, they added, cocoa is also vulnerable to overdraft hedging, but not to the same extremes as London contracts.
Short covering occurs when investors repurchase a borrowed asset to close short positions, which can result in a profit or loss. If prices rise, a rush to close short positions can lead to a short squeeze in which traders re-accumulate the asset, pushing prices higher.
JP Morgan strategists wrote in a note this week that signs of recovery were already emerging.
“Cocoa markets fell sharply during the week after producer prices were increased by the governments of Ivory Coast and Ghana, leading to one of the largest weekly losses of the year… following sales of new crops by producers,” they said.
But they added: “Aggregate open interest in futures and options in the cocoa market is recovering from historic lows to February 2025 levels.”
Last February, US cocoa futures periodically traded above the $10,000 mark.
