World market price of cocoa drops by 27% in 2 days

Cocoa prices experienced further downward trend yesterday, marking another day of volatile trading characterized by limited liquidity that intensified market swings.

Futures in New York plummeted by as much as 11%, erasing earlier gains observed during the day.

This decline follows a turbulent start to the week, where futures at one point experienced a dramatic 27% slide, marking the largest two-day decline on record.

July London cocoa saw a marginal decrease of 0.3% to 7,906 pounds per metric tonne, extending the market’s retreat from its record high of 9,980 pounds set on April 19.

Similarly, July New York cocoa fell by 2.4% to $9,063 per tonne.

The market’s recent instability was underscored by July London cocoa futures on the ICE exchange, which recorded a nearly 15% drop on Monday, marking their largest single-day loss.

On Tuesday, they further declined by over 10% at the market open.

However, they rebounded slightly, with a 2% increase to 7,834 pounds per tonne.

Meanwhile, July New York cocoa futures also saw a 3% rise to $9,190, recovering from a nearly 16% loss on Monday.

The surge in cocoa prices earlier this year, driven by a historic supply crunch attributed to poor harvests in West Africa, has led to record-high contract prices.

However, the recent market turbulence has been fueled by liquidity constraints, as traders struggle to maintain positions amid increased costs associated with the rally.

Traders are facing a liquidity crunch that is disrupting the global cocoa market, causing delays in bean purchases from major producers such as Ivory Coast and Ghana.

This delay stems from traders’ financial constraints, as the soaring prices necessitate higher financial commitments to back their futures positions.

Consequently, many traders and chocolate companies are opting to defer bean purchases for the upcoming season.

The supply tightness is exacerbated by challenges such as adverse weather conditions, aging trees, and crop diseases, which have significantly reduced cocoa output this season.

As a result, market participants are losing confidence in their ability to fulfill forward contracts, leading to further delays and uncertainty regarding the size of the next crop.

In response to the supply challenges, Ivory Coast and Ghana have rolled over contracts amounting to approximately 400,000 tons of cocoa, adding to the strain on supply availability in the market.