In late October, the nearby December ICE cocoa futures contract surpassed the 2011 peak, reaching levels beyond $4,000 per ton in November. The rally in cocoa prices has been persistent, with the soft commodity displaying higher lows and higher highs since hitting a low of $1,769 per ton in June 2017.
The ten-year chart analysis shows a bullish pattern that broke out in July 2023, and as of November 20, cocoa’s path of least resistance continues to be upward, with prices exceeding $4,000 per ton. In November 2023, cocoa prices soared to a multi-decade peak, breaking out to $4,110 per ton. The monthly chart dating back to 1970 reveals that cocoa futures have reached the highest price in forty-five years, surpassing the previous peak of $3,826 in 2011. The next technical target is the 1978 high of $4,142, and beyond that, the 1977 high of $5,379 stands as a significant milestone.
Despite the impressive rally, cocoa may not exhibit typical price elasticity, as global chocolate enthusiasts are likely to accept higher prices for their beloved treats. The Ivory Coast and Ghana, leading cocoa-producing countries, are experiencing delays in bean deliveries to Ivorian ports, with analysts predicting a third consecutive deficit for this vital chocolate ingredient. The surge in cocoa prices, alongside elevated sugar prices since 2011, is contributing to increased prices for cookies and candies. Consumers, driven by their love for these sweet indulgences, are expected to absorb the higher costs.
However, a cautionary signal emerges from the cocoa forward curve, displaying a backwardation. Prices for deferred delivery from March 2024 are progressively lower, indicating the market’s sentiment that demand may decrease at higher prices, potentially leading to increased production and lower future prices. Despite this backwardation, prices for May 2025 delivery remain elevated, hovering above the $3,600 per ton level.
For market participants, the futures market is the sole avenue for cocoa investment since the delisting of the NIB ETN product. Futures and futures options are available on the U.S. Intercontinental Exchange and the cocoa #7 futures and options on the European Intercontinental Exchange. With a contract size of ten metric tons, the U.S. contract is priced in dollars per ton, while the European contract uses British pounds. Margin requirements for cocoa futures involve original and maintenance levels, with the initial margin at under 4% of the contract value, offering significant leverage along with associated risks.
While cocoa’s trend remains bullish in late 2023, investors should be aware that even the most robust bull markets rarely move in straight lines. As prices climb higher, the likelihood of a substantial price correction increases. The recent surge in cocoa, alongside other soft commodities like sugar, coffee, cotton, and frozen concentrated orange juice, has marked a bullish trend in the sector. Cocoa, in particular, has joined the rally, reaching a forty-five-year high, and the potential for a challenge to the all-time high remains on the horizon.
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