Increased Covid-19 Cases, Decreased Cocoa Demand

July 2, 2020 07:00 AM
Cocoa futures had a small rally but failed to trade
Demand has been a long-term issue for cocoa
Impact of delayed and paused restaurant reopenings in the U.S.
Cocoa Futures Update

Cocoa Futures Update

As the world, especially in the United States, sees an increase in Covid-19 cases some commodity prices are weakening. Cocoa futures had a small rally but failed to trade and hold above 2400 in the September contract. As the old lows were tested the past few sessions, on Tuesday 2200 was broken. Demand has been a long-term issue for cocoa even before the virus spread but now that less cocoa is needed for consumption the bottom could be unknown. Will 2000 be the next downside target? If more reopenings are paused, indoor restaurant seating remains closed and sporting events are delayed any further “food” commodities could continue to take a big hit.

Food companies remain positive that the markets will turn around, demand will return, and things will go to a new “normal” once the pandemic is under some control. But for the time being, it appears we are a long way from that.

Bearish traders may want to look at long puts in the front months. Traders who anticipate a recovery will want to look further out, 2021 options for example, to have exposure once the softs recover.

September Cocoa Daily Chart

Source: Tradingview

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About the Author

Peter Mooses is a commodity broker at RJO Futures. He enjoys the analytical aspects of futures trading and appreciates the economic impact that commodities have across all markets. Peter utilizes market analysis and trends to help clients achieve a balance between risk and return, while always keeping their investment objectives top of mind. Follow Peter on Twitter @PMoosesRJO