Cocoa futures continue to be demand-driven. This time of year, we typically see a boost in chocolate sales for the Valentine’s Day holiday, but this year is a little different. With fewer people going out due to Covid-19 restrictions, along with the slow reopening of restaurants and stores, chocolate sales are down. The May chart continues to trade in consolidation due to these factors.

At a point on Thursday, we saw a 9% drop-down. I do believe a lot of it has to do with traders preparing for the roll. Cocoa is certainly a commodity to watch this year, as it’s been heavily affected by lockdowns. Loosening restrictions and more activities beginning to reopen will only help prices move higher. If the trend continues, traders will want to be long moving forward, so shorts will probably look to exit positions as the year progresses. 

We saw a dramatic sell-off due to repositioning from the March contract to months that are in the more distant future. Looking at options pricing, it appears traders are looking to remain long in cocoa contracts.

With weather patterns also creating a bullish sentiment, cocoa prices should head back above 2500 in the near-term.

May Daily Chart

Source: Tradingview

If you're interested in discussing the soft commodities, contact pmooses@rjofutures.com.