LONDON: Cocoa futures on ICE plunged nearly 10percent in intraday trade on Monday while coffee also headed lower, as trading remained volatile after a wall of speculative money looking for a home hit the two contracts last week.
By 1051 GMT, ICE London cocoa was down 9.2percent at £4,083 a metric ton, after closing down 6.4percent on Friday although it still posted weekly gains of 20percent. New York cocoa was down 9.1percent at USD5,511 a ton.
Prompted in part by concerns the El Nino weather pattern will strengthen and lead to increasingly adverse weather, speculators bet strongly on price gains in cocoa and coffee at the start of last week. In a bid to reduce the risk of defaults caused by the price surge, the ICE exchange then moved to repeatedly raise margins or trading down payment requirements during the week. The increased down payments required to trade then limited the amount of liquidity in the cocoa and coffee market and in turn increased price volatility by allowing fewer players to drive price moves.
Dealers said that ‘cocoa tourists’ or speculative day traders that follow technical signals are becoming increasingly active in cocoa as they attempt to make money from the volatility.
Looking beyond the noise though, they said cocoa should continue to head higher overall, with even technical trading signals indicating the last two sessions’ decline is “corrective within a broader recovery trend”.
On the fundamental signals, top cocoa grower Ivory Coast’s upcoming 2026/27 main crop is expected to drop more than 10percent amid insufficient crop care and El-Nino linked excess rains that have in turn heightened disease risk.
ICE arabica coffee fell 2.2percent to USD3.2680 per lb. The contract skyrocketed 16percent last Monday, plunged on Tuesday, fell on Wednesday and still managed to close week up 11percent. Robusta coffee fell 2.3percent to USD3,791 a ton.
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