RECESS IN PRICE RALLIES?
The extraordinary price rallies recorded in the cocoa futures markets have been accompanied by an increasing volatility. The annualized price volatility of the 2nd position on ICE Futures US moved from about 3.95% in October 2023 to nearly 18.73% in April 2024 (Figure 1). This made it more expensive and financially risky to maintain a position in the cocoa futures markets (Figure 2). Indeed, the huge daily price variations translated into sizeable margin calls prompting traders to exit the market.
While price volatility has been further amplified by the reduced market liquidity, the most important driver is the great uncertainty about the next crop year. In the absence of reliable statistics on areas under cultivation, tree ages and yields, and the state of spread of Cocoa Swollen Shoot Virus Diseases (CSSVD) in Côte d’Ivoire and Ghana, it is necessary to wait for the completion of pod-counting surveys, expected between the end of August and mid September, to have an initial estimate of the projected market balance for the 2024/25 year.
1 On 18 April, the closing price of the 2nd position on ICE Futures was $882 higher than the closing price recorded the day
before. On the other hand, on 29 April, the closing price of the same contract was $1,656 lower than closing price recorded on
28 April. Taking the price movement of 28 April as an illustrative example, a trader with a long position of 100 contracts had to
pay $1,656,000 to the Exchange to maintain the long position.
