Welcome to Extreme Investor Network, your go-to source for all things finance, investments, and market insights. Today, we are diving into the recent extreme volatility in the cocoa market that sent shockwaves through the futures market.
The cocoa market experienced a historic crash this week, with futures in New York falling as much as 27% in the biggest two-day decline on record. Prices then rebounded, showcasing the extreme swings driven by a lack of liquidity in the market.
Jonathan Parkman, head of agricultural sales at broker Marex Group, highlighted that the fundamental picture in the market has not shifted significantly. The surge in prices earlier this year due to factors like bad weather and crop disease in West Africa has led to margin calls and forced position closures, reducing liquidity in the market.
Despite the recent price drops, forecasts suggest that prices may rebound from current levels. Pierre Andurand, a well-known hedge-fund manager, has bet on higher cocoa prices and predicted futures to break $20,000 this year. However, others are less bullish, with JPMorgan analysts suggesting prices could decline to around the $6,000 mark over the medium term.
Cocoa supplies are expected to fall short of demand for the third consecutive year, leading to shortages and delayed deliveries in top cocoa-producing countries like Ivory Coast and Ghana. Recent efforts to increase the price paid to farmers and compensate shippers for losses aim to alleviate some of the pressure on the market.
While high cocoa prices have started to impact demand, lower prices could provide relief to chocolate makers facing rising costs. Shares of companies like Barry Callebaut AG and Lindt & Spruengli AG have seen positive movements in response to the market dynamics.
Looking ahead, the end of the El Nino weather phenomenon and the potential for a La Nina could impact cocoa production in the coming years. West African production may increase under a La Nina pattern, combined with rising production in countries like Brazil and Ecuador.
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