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Cocoa Prices Fall on Rumored Supply Rejuvenation in Ghana

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Nov. 20 2020, Updated 12:32 p.m. ET

Cocoa prices fall

The cocoa futures contract on the Intercontinental Exchange, or ICE, for March delivery fell 4.2%. It settled at $2,810 per metric ton on January 20. Cocoa futures prices fell due to higher-than-projected supply cues from the world’s second-largest producer, Ghana. The iPath Pure Beta Cocoa ETN (CHOC) fell 3.9% on January 20, 2016.

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Ghana cocoa supply rumor

Adverse weather conditions delayed pesticide and fungicide applications. There was a significantly lower crop estimation for 2015. A rumor that Ghana’s cocoa regulator, Cocobod, has bought 590,000 tons of cocoa from farmers has led to a broad sell-off in futures prices—20% more than last year. With the anticipated lower output, speculators bought cocoa, and this could drag down prices with the rejuvenated supply. The sell-off pulled prices down to nine-month lows on ICE.

Agricultural soft sell-off

Broad selling off in agricultural soft commodities remained the center of activity on January 20. I blame the sharp decline in oil prices, concerns over slowing Chinese growth, and world economic growth overall. According to the International Monetary Fund, global economic growth projections were pared down by 0.2 points to 3.4% on January 19. Cocoa has led the sell-off, and further projections say that prices might continue to be dragged by global selloffs.

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Cocoa prices in 2016

So far, cocoa prices have fallen by 12.48% in 2016. With further downward price movement anticipations, prices could hit historic lows. The change could boost food and beverage companies’ grinding margins.

Concerned cocoa business

The fall in cocoa prices should benefit the food and beverage businesses that use cocoa as an input. Dean Foods (DF) and Hershey (HSY) stock rose 0.27% and 0.38% on January 20. On the other hand, Mondelez International (MDLZ) and Starbucks (SBUX) fell 1.9% and 2.7%. The iShares MSCI Brazil Index (EWZ) fell 2.4%.

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