Cocoa futures experienced a 10% decline in both New York and London, driven by increased margin calls and uncertainty surrounding a historic market crunch.
Traders withdrew from the market, resulting in significant price fluctuations.
The most-active contract in New York dropped by as much as 10% to $9,510 a ton, marking the largest intraday decrease since 2008 and extending declines from the previous week.
The market entered a correction phase, with futures falling approximately 18% from the record high set on April 19.
This decline coincides with a reduction in the number of outstanding contracts, nearing the lowest level in over a decade based on data compiled by Bloomberg.
Increases in margin requirements for trading and a large reduction in the number of outstanding contracts “opens up more space for trend reversals, with fewer players being able to drive more abrupt movements,” said StoneX analyst Leonardo Rossetti.
Bean supplies could see a slight improvement due to rainfall in West African growing regions, potentially benefiting the upcoming mid-crop harvest. However, this rainfall does not fully address the severe shortage that has led markets into a third consecutive year of deficits. Additionally, the wetter weather contributes to a lack of new bullish events, as money managers persist in reducing their net-long positions.
“The shortage is not over,” said consultant Paulo Torres, a London-based trading and agricultural consultant. “The elephant in the room is the fact that Ivory Coast and Ghana do not have cocoa, so there is no way prices can fall significantly.”