Cocoa Futures Plunge 8.3% on Speculative Sales and Economic Fears

Fear and uncertainty in the markets led to a significant drop in U.S. May cocoa futures, with prices falling 8.3% to their lowest level in 11 weeks. The meltdown in commodities and equities, combined with a strengthening U.S. dollar, resulted in heavy speculative sales and a decline in demand for cocoa, a luxury item. Analysts predict further losses in cocoa demand due to the bleak economic outlook, which is expected to negatively impact chocolate consumption in key markets.

Key Takeaways:

U.S. May cocoa futures fell 8.3% to $2,213 a ton, the lowest level in 11 weeks, due to heavy speculative sales and economic fears.
Demand destruction trades resulted in losses of 3%-4.5% on major commodity indexes, with crude oil dropping nearly 10% and the U.S. dollar strengthening.
Analyst James Cordier predicts that cocoa will mirror the stock market, with bleaker economic outlooks leading to reduced manufacturer demand for inventory.
London-based Fortis bank forecasts a 3% decline in 2009 global cocoa grindings due to markedly reduced chocolate consumption in Asia and eastern Europe.
Cocoa bean arrivals from top producer Ivory Coast have increased in recent weeks, contributing to supply pressure in the market.

Statistics:

U.S. May cocoa futures fell 8.3% to $2,213 a ton.
Demand destruction trades resulted in losses of 3%-4.5% on major commodity indexes.
Crude oil fell nearly 10% in value.
The U.S. dollar strengthened, contributing to the decline in cocoa prices.
Cocoa bean arrivals from Ivory Coast have increased in recent weeks.
ICE cocoa open interest decreased by 1,962 positions to 115,898.
17,500 lots were traded in U.S. May cocoa futures, with 143 calls and 319 put options traded.

Sources:

Dow Jones Commodities News via Comtex, Mar 02, 2009
Tom Sellen, Dow Jones Newswires, tom.sellen@dowjones.com
OptionSellers.com, James Cordier, analyst and founder
Fortis bank, London-based