Prices of cocoa futures traded on the ICE exchange fell more than 14% on Monday, posting the biggest single-day loss on record, as speculators decided to liquidate some of their long positions in the commodity and take profits.
Cocoa is currently the most sought-after commodity on the market, with prices jumping 60% last year and more than 100% since the start of the year. The disastrous production situation in West Africa, where most of the beans are grown, is behind the sharp rise in prices.
This increase, however, showed signs of weakness last week, when prices did not continue their rise. Market experts believe this was the sign investors were waiting for to start putting money in their pockets.
“Today’s action appears to be, in my view, a long overdue corrective decline, triggered by a weakening technical situation,” said a New York-based cocoa trader.
“I think the market has been overwhelmed by liquidations of long positions, short selling and a lot of intraday trading,” he added.
“What we’re seeing today is technical selling,” said a second U.S. trader, adding that some investors have also started shorting the market, betting that prices have peaked.
New York July cocoa on the ICE fell $1,663, or 15.7 percent, to $8,931 per metric ton. July cocoa in London fell 14.5% to 7,678 pounds per tonne.
Despite the sharp daily loss, the situation in the cocoa market has not changed, said Leonardo Rossetti, commodities analyst at broker StoneX.
“Market fundamentals remain strong. Supply is tight and demand is resilient, so I don’t see this market deepening too much,” he said.
Rossetti noted data released Monday on cocoa arrivals in Ivory Coast, the top producer, which are down 29% for the season.
In other commodities, July robusta coffee gained $13, or 0.3%, to $4,164 per tonne. The contract hit a record high last week at $4,338.
The robusta coffee market is also very tight on the supply side, and there are concerns about hot and dry weather in Vietnam, the main producer of robusta.
July Arabica coffee rose 1.6% to $2.2750 per pound.
May raw sugar gained 4.1% to 20.20 cents per pound. Traders said about 1 million to 1.5 million tonnes of sugar, mainly Brazilian, was expected to be delivered under the May contract which expires on Tuesday.
August white sugar rose 1.8% to $573.80 per tonne. (Reporting by Nigel Hunt and Marcelo Teixeira; Editing by Shailesh Kuber, David Evans and Tasim Zahid)
