[Christian Harris]

Cocoa futures have dropped below $10,900 per tonne, marking their lowest levels since mid-January, as traders engage in long liquidation due to improving weather conditions in West Africa.

Favourable rainfall and increased fog have enhanced soil moisture, offering hope for the upcoming cocoa harvest.

Farmers in the Ivory Coast, the world’s largest cocoa producer, noted that while the weather has been more supportive recently, uncertainties surrounding the overall crop outlook persist.

Adding to the market dynamics, recent data shows that Ivory Coast farmers have shipped approximately 1.29 million metric tons (MMT) of cocoa to ports since the start of the marketing year.

This figure represents a significant 22% increase compared to the same period last year, although the shipping pace has decelerated from the sharp 35% rise recorded in December.

Despite the recent dip in futures, analysts anticipate that cocoa prices will remain elevated in the coming months, driven by ongoing weather-related challenges.

In particular, insufficient rainfall in key cocoa-growing regions like Ivory Coast and Ghana continues to threaten crop yields.

Maxar Technologies, a leading weather forecasting firm, has reported that this year’s Harmattan winds—dry, dusty trade winds that blow from the Sahara—are the driest in six years, further stressing cocoa crops.

These adverse weather conditions are likely to tighten supply and keep prices firm, even as temporary improvements offer short-term relief to the markets.

Capitalising On Cocoa Price Movements

For traders, the current volatility in cocoa markets presents both risks and opportunities.

Those looking to capitalise on short-term price dips may consider buying futures contracts at current lower levels, anticipating a rebound driven by ongoing weather challenges and tightening supply.

Conversely, traders focusing on short-term gains might take advantage of price declines by shorting cocoa futures, particularly if favourable weather conditions persist in West Africa.

Options trading is another strategy, allowing traders to hedge against sudden market shifts while positioning themselves for potential price recoveries.

Monitoring weather patterns, shipment data from key producers, and global demand trends will be crucial for informed trading decisions.

As the market reacts to both immediate and long-term factors, agile strategies can help traders navigate and profit from cocoa price fluctuations.

Source: Trading Economics

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