Cocoa futures went along with the rest of the soft commodities sector in Q3, posting an over 12% gain for the quarter. While cotton, coffee, sugar, and FCOJ futures rose to new multi-year highs in Q3, cocoa did not achieve that goal in the quarter that ended on September 30. Cocoa futures posted an anemic 1.88% gain over the first three quarters of 2021.
Cocoa beans are the primary ingredient in chocolate confectionery products enjoyed by people worldwide. Meanwhile, rising freight rates and inflationary pressures have pushed cocoa prices higher. At the very beginning of Q4, cocoa rose to a new high for 2021 and the highest price since December 2020 as the price approached the $2800 per ton level.
The majority of the world’s cocoa comes from West Africa, where the equatorial climate supports the growth of the beans. The Ivory Coast and Ghana are the world’s top producers, supplying over 60% of annual supplies. “The odds favor higher cocoa prices as it approaches its first resistance level. In the commodity bull market relay race, the primary ingredient in chocolate could be the next recipient of the bullish baton.” Cocoa futures were trading around the $2570 per ton level in early August. In early October, they made a new high for this year.
Input costs are rising worldwide:
Inflationary pressures are not just in the US; the world is feeling the pressure of rising prices. Energy is a critical component in commodity production. Over the past months, coal, natural gas, and crude oil prices have soared. Energy is a critical input cost for all commodity production. Labor costs are also rising as the African continent works to eliminate child labor when it comes to cocoa. Moreover, inflationary pressures are increasing other input costs, including farm equipment and fertilizers and pesticides that are integral parts of the cost of production.
Supply chain issues are global:
Rising energy costs also put pressure on logistical costs. Thanks to increasing freight costs, transporting cocoa beans from West African farms to ports and destinations worldwide has become more expensive. Rising freight rates and bottlenecks in the supply chain are putting upward pressure on all commodity prices, and cocoa is no exception.
If cocoa is going to follow cotton, coffee, sugar, and FCOJ futures to new multi-year highs, the technical resistance levels stand at the 2020 $3054 high, the late 2015 $3422 peak, and the 2011 $3866 high. In 1977, cocoa reached its all-time high at $5,379 per ton.
Cocoa Long (Buy)
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