Breaking News

A Fresh Top In Cocoa

By Dr. Duru CommoditiesMay 30, 2018 04:53AM ET
A Fresh Top In Cocoa
By Dr. Duru   |  May 30, 2018 04:53AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

It did not take long. Two days after I identified a Bollinger Band squeeze on iPath Bloomberg Cocoa SubTR ETN (NYSE:NIB), the technical chart pattern resolved to the downside. NIB has lost 11.9% over this time.

NIB Chart
NIB Chart

The iPath Bloomberg Cocoa SubTR ETN (NIB) lost 1.7% and finished at a 7-week low.

At current levels, NIB has confirmed a top from its 19-month high: a breakdown below the 50-day moving average (DMA) and a complete reversal of April’s breakout. I used the extremes in bullishness around the 19-month high as a reason to get cautious and avoid buying back into NIB after having recently taken profits. Looking back, those signs really stand out as classic pointers for a top in a commodity.

The headlines during this decline have been surprisingly thin on the fundamentals.

On May 15th, NIB lost 4.3% and traded down to its 50DMA. Reuters observed at the time “…layers of automatic sell orders, potentially signaling that this year’s strong advance may be starting to run out of steam.” Interestingly, and perhaps a telling extreme, the day before traders were reportedly buying up West African beans for export to the U.S. to take advantage of the highest New York market premium in over 40 years.

Last week, May 22nd, Reuters published a weather update indicating that conditions looked good in Ivory Coast to generate strong mid-crop production. Reuters even quoted one farmer confirming this assessment: “We will have significant volumes of cocoa near the end of the mid-crop…”

While cocoa experiences short-term weakness, I am keenly aware of longer-term issues that could eventually drive fresh price rallies. For example, illegal gold mining in Ghana is killing cocoa plantations. Some Ghanaian cocoa farmers may be turning to rubber production despite the difficulties faced in making such a sharp transition. And then there is Derek Chambers, the head of cocoa at Sucres et Denrees SA who recently ended a 50-year career trading cocoa. In an interview, he noted that Ghana and Ivory Coast sold forward so much cocoa that there will be little left to sell later in the season. I pointed to this aggressive selling in a previous post noting how these countries likely sold their farmers short. Until now, I did not think much about the implications for future inventory availability.

The Bloomberg article on Chambers ended on a theme I am increasingly giving attention: the large disparity in the fortunes of the farmers versus the rest of the cocoa supply chain:

“The business that has grown up around the need for sustainability does not benefit the farmers anywhere near as much as it does the NGOs, companies and individuals involved in the circus…It is a great regret of mine that farmers in West Africa were poor when I came into the business and are still poor, probably even poorer now.”

Be careful out there!

Full disclosure: no positions

A Fresh Top In Cocoa
A Fresh Top In Cocoa

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email