Cocoa Demand Expected to Heat Up
?? Fundamentals
Cocoa prices have been sliding, despite record demand for chocolate and a supply shortfall. This marketing year is expected to produce the first supply shortfall in three seasons. Processing of Cocoa beans is expected to rise by nearly5%, while chocolate consumption is expected to climb by 5.7%. A major drag on the Cocoa market comes from outside markets.
Outside of Cocoa, the softs markets have extremely weak fundamentals due to large supply excesses, especially in Coffee and Sugar. This has led to lower investment in the commodity grouping by funds. Weaker economic data has many traders less optimistic on commodities as a whole. Eventually, market efficiencies could result in Cocoa prices rising.
?? Technical Notes
Turning to the chart, we see the March Cocoa contract steadily sliding since early September. Prices are now below the 20, 50 and 100-day moving averages, which can be seen as negative. The next significant area of support comes in near the 2300 level. In order to gain some traction, prices may need to cross back above the 2500 level.
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