We begin our discussion of the cocoa market with an observation. On October 15 – the day before the release of European grind data – December cocoa settled at $2,354 per tonne (Chart 1). The grind results were dismal, but better than expected. Third-quarter grindings were down 16.2% year-over-year. Analysts had expected a decline of 15% to 20%. Similarly, a couple of days later, the North American figures came in down 2.19%, “better” than analysts’ guesstimates of a decline between 3% and 10%. Traders actually bid the market up by $1,500 per tonne, allegedly relieved that the numbers were not worse.
The rally was lost, but the market has had four weeks to absorb the implications of falling demand implicit in the grind numbers, but prices are holding above the pre-grind level. Commodities in general – the other softs, energy, base metals, and now grains – have experienced a broad selloff, so it pays to take note of markets that might be bucking the trend.
As far as the European grind is concerned, one large German processor claims that its results were omitted completely from the survey. Although there were no hard figures accompanying this news, it does seem that the total European grind would have been considerably higher with the inclusion of the missing grinder. And this explains, at least in part, why the market had such a bullish reaction to what was ostensibly bearish news.