Cocoa has been on a steady decline since the start of the month. As more vaccines are administered, the globe will get a better idea of when we can get back to “normal.” For now, Covid-19 cases are on the rise in certain areas, shutdowns continue, and employment concerns are very relevant. 

Fundamentally, cocoa has been one of the hardest hit commodities of late. Adding and removing shutdowns have created volatility in cocoa, and the recent pullback in May cocoa can create opportunities for traders: there’s clear support on the chart and a reversal may be forming. 

If you’re looking to buy further-out calls in the September contract, an increase in demand in the summer months could help this idea. Also, a strengthening Pound will help traders find a direction of the market. Of late, the NY cocoa versus the London cocoa has also been something to watch. 

As we move into the 2nd Quarter, I suggest monitoring cocoa’s key growing regions and what production numbers come in at. Weather will play a big factor in the coming months, as hot, dry heat can hurt the crop and also boost the futures prices.

May Daily Chart

Source: Tradingview

If you are interested in discussing the soft commodities contact pmooses@rjofutures.com.