Europe's hunger for cocoa surged the most in 10 years this week, as German, Dutch and French importers increased their orders. Rising European demand and a 12% increase in American use threaten to soak up all of the available cocoa bean on the market, creating a potential supply "squeeze." With this skewed supply & demand picture, speculators drove the price of cocoa sharply higher. Speculative buying rocketed September cocoa futures higher, causing them to gain $214 per metric ton to $3210, a two-month high.
The sugar market followed cocoa higher, with the October sugar contract rising near three-month highs at 17.61 cents per pound on Friday. The price rise in sugar has been driven mainly by demand from Asian nations, including Thailand, China and India, three of the world's largest growers. Despite the fact that these three nations produce nearly 25% of the world's sugar, they have recently been importing, rather than exporting the product. This momentous turn-around has fueled sugar's recent 35% rise from 13 cents in May.
For now, many traders are wondering how far and how fast these moves in cocoa and sugar can go. Just six months ago, the markets were at $3500/MT and 31 cents/lb, respectively, which shows these markets' potential.
"It's The Weather, Stupid"
"It's the economy, stupid" is the phrase that was made famous during President Clinton's 1992 presidential race. "It's the weather, stupid" may be the most accurate, albeit brusque explanation for this week's continued rally in corn and soybean futures markets.
Weather reports that a strong ridge of high pressure would set up over the entire Midwest spurred traders to buy, as hot, dry weather interferes with corn's delicate pollination period and can damage soybeans' root systems.
On Friday, weather forecasts predicted that next week would bring the hottest temperatures so far this year. The December contract for corn hit a four-month high on Friday, reaching $4.08 per bushel. Soybeans for November delivery reached a seven-month high, trading at $9.92 per bushel.