Cocoa market forecast after 15 October 2013

A month has passed since our last release on September 15. I will briefly reiterate the main points of the last release. Please keep in mind that as of the moment of the last release the NY price was 2570 USD.

“…the market is fundamentally posed to exceed the 2700 USD peak already in the next week. On the technical side, however, the market is overbought.

We expect the following scenario. Week 16–22/09. After a certain correction within 20-40 USD speculators will attempt to drive prices to 2700 USD or higher (1760-1800 GBP). They will not even need extra funds to do that. Since many hedgers have been actively selling at 2500 USD, when the price rises to 2650 USD, margin call will come knocking to physical traders… Thus, the situation usually snowballs, creating a sharp price movement (or “tail” in the traders’ parlance).

We expect such tail to form as early as next week. In such case the NYBOT price will easily exceed the 2700 USD level…”

We admit a certain mistake with dates, but not with the market level. The time mistake was 10-12 days. Thus, the market reached the predicted level of 2760 USD at the NY exchange and 1780 GBP in London. It was brought about by speculators taking record long positions, weak dollar in the anticipation of the US budget negotiations and the lack of sufficient precipitation in West Africa. Indeed, the precipitation level in late September-early October was less than average. However, during the last week tropical rains started streaming down on plantations in torrents as shown in the figure below.