Cocoa Can’t Stop, Won’t Stop

May cocoa futures traded as high as $8,900/metric ton this week, which is more than double the value of where it started the year at an already historically high level. The short supply story due to adverse weather impacting the West African nations of the Ivory Coast and Ghana are well publicized at this point and have been for some time. It was first reported here on Feb. 9 and was a widespread discussion at the time in media spaces that follow commodities.

Cocoa futures, like most soft commodities, are a niche market with thin trade volume and few participants on a regular basis. It has now received a boatload of attention over the last few months and some new participants because of that attention. There have been many market examples in the past showing that when new participants show up, it's usually a good sign to start making your way to the exit door if you were in on the trade before the papers started writing about it. But who reads the papers these days (other than you, dear reader)? When the cocoa futures do top, it will likely be just as fast on the way down as it was on the way up, if not faster. Neither the fundamentals nor the timing of new participants will probably matter now. What will matter is deep pockets and when they decide to participate from the short side.

Fed Message Mixed

The FOMC voted unanimously to leave the federal funds rate unchanged this week. However, the “dot plot” showing Fed board members' future interest rate projections still maintains a forecast of three rate cuts this year, but removed a cut from 2025 and another in 2026. Recent data for the last two months show core inflation rates to be stubbornly sticking around, which had many thinking the Fed would take a more hawkish stance this week. But that wasn’t the case as Fed Chairman Jerome Powell’s comments were benign with little-to-no change from last month.

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