10=07-2017: December Cococa: Demand - Supply Revisions

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calend Spread

Level Table
Other Factors

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Cost of production sometimes rules. Sentiment on cocoa has carried prices below what they probably should be based upon cost of production. Demand is increasing, especially in Asia, and supplies are somewhat compromised by wet weather and low prices encouraging farmers to plant other crops. Various analysts are assessing that cocoa will remain fairly stable with limited volatility for the foresseable future, but slowly climbing back up to more normal levels as selling may have been overdone.

Intermarket Analysis

We fed Cocoa, Sugar, and Coffee into a neural network to get the following result:

Parabolic Chart

December Cococa:

Parabolic Chart

Nirvana Chart

December Cococa:

Initial Chart

News Analysis

Improving demand offset near-term uncertainty about improving West African supply flows to allow cocoa to break out above a recent consolidation zone. Asian demand for chocolate and other cocoa products is rising faster than analysts expected. Global growth is estimated at 2%-3% and Chinese growth is estimate at 3%-4%. Asian demand as a whole is estimated to reach 4% for cocoa in coming years. Indonesia may import a record amount of cocoa this year. That is due to a supply shortage according to their cocoa board. Indonesia's turndown in production to a multi-year low has come at a time when their grinders have ramped up their capacity. The International Cocoa Organization flagged signs of Asia realizing long=held ambitions for cocoa consumption, and noted cause for caution over Cote d'Ivoire outoput as well. Output in top grower Ivory Coast shold more than offset downgrades in crops in Brazil and Indonesia. It cited a 3.7% growth rate in grindings for the coming year.

Cocoa production may be down 10% this year. Fallilng Eurocurrecy and British Pound exchange rates recently has helped cocoa prices rise 99 points or 4.9% higher. That means export competitiveness is greater. The cocoa market has a production surplus forecast for the next season A global production surplus of 372,000 tons is forecast by the International Cocoa organization (ICCO), but might be able to help from a forecast of 2015/16 of global grindings at 4.282 million tonnes, an incrase of 3.7% over 2015/16 grindings and the second highest total in history.

Commerzbank is sanguine on cocoa but says cocoa prices "should soon have passed through the trough." Rabobank is "bullish" on cocoa futures, as well as for corn used for fructose and sugar prices. Banks in general are moderate on softs recovery prices. Commerzbank of looking for $2,100/ton by the end of the year.

Major chocolate manufacturers have generally reported improved sales volumes, with low international cocoa bean prices anticipated to encourage cocoa processing actdivities.

Concerns remain for Chinese imports of cocoa, which remain under 20,000 tonnes for the first seven months of this season, down 14% from previously.

There may be excessive rains in the Ivory Coast. The quality of the mid-crop may be affected. More sunshine is needed for development of the main crop. Harvesting there begins next month.

Hedge funds are generally selling agricultural products, but cocoa is getting a buying spree from them.

In Costa Rica, researchers are cloning cacao hybrids resistant to frosty pod rot, a blight that has spread through Latin America cocoa=producing regions.

Squatters using protected lands to grow cocoa have helped strip the country of 4/5ths of its woodlands. Now evicted, many are struggling to survivie.

Hershey, Mondelez, and Lindt, a company that owns Russell Stover, all raised prices as much 8% last year to offset cocoa costs, and prices have not come down since then much. Some packaging has reduced the number of "eggs" in a package to avoid lowering package costs.

Many farmers in West Africa are not seeing any future in cocoa, so they are planting rubber trees instead of cocoa trees. Improved labor conditions and environmental restrictions in Africa have prompted American manufacturers to buy only from "certified and sustainable farms."

Investing in cocoa has been tough during the past year. Not only has oversupply dealt a huge blow to prices, but even as selling volume stabilized, prices continued to sink lower. News of a hedge fund failing didn't help sentiment. Farmers have been moving from Ivory Coast to Ghana to obtain better crop prices. The World Bank has commented on Ivory Coast lack of transparency, corruption, and mismanagement. Some smuggling of cocoa grown in Ivory Coast into Ghana to obtain better prices has met with tightened security at the border.

The bottom line seems to be that increasing demand from Asia coupled with varous restrictions on production from weather, environmental regulations, government subsidies not present, all seem to point to stabilizing, if not higher prices in the near future.

Point & Figure Chart

 35.0I                                                                  T 10/ 4
     I ICE - Dec-17 Cocoa, 10 metric ton $100/ton  Cm.=0.03  Lim.= 1.5
     I                    X
     I      X             XO
     I      XO        X   XO
     I      XO        XOX XO
     I    X XO        XOXOXO
     I    XOXO        XOXOXO              X     X
     I    XOXO        XOXOXO              XO    XOX
     I    XOXOX     X XOXOXO              XO    XOXO
     I    XOXO O  X XO OXO O        XO    XOXOXOXOXOXO
     I    XO   O  XOX  O   O        XOX   XOXO OXO OXO
     I  X X    O  XOX      O        XOX   XOX  O   OXO
     I  XOX    OXOXOX      O      XOXOX XOXOX      OXOX
     I  XOX    OXOXOX      O    X XOXOX XOXOX      OXOXO
     I  XO     OXOXOX      OX   XOXOXO O OXOX      O OXO
     I  X      OXOXOX      OXOX XOXO     OXO         OXO
     IXOX      O OXOX      O OXOXO                     OX
     IXOX        OXOX        O O                       OXO
     I OX        OXOX                                  OXO
     I OX        O O                                   O O
     I                                                   O
     I                                                   O
     I                                                   O
     I                                                   O
     I                                                   O
     I                                                   O
     I                                                   O
     I                                                   O
     I                                                   OX
     I                                                   OXOX
     I                                                   OXOXO
     I                                                   OXOXOX   X
     I                                                     O OXO  XO
     I                                                       O O  XOX
     I                                                         O  XOXOX X     X
     I                                                         OX XOXOXOXO  X X
     I                                                         OXOXOXOXO O  XOX
     I                                                         OXOXOXOX  OX XO
     I                                                         OXO OXO   OXOXO
     I                                                         O   OX    OXOXO
     I                                                             O     O OX
     I                                                                     O
      11     1111         11                            1111
The above chart is giving a conventional buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Thrust." It is giving a sell signal.

Internal Printout 1

Results of "Thrust" for Cocoa (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system is working on a longer-term sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,000. Initial margin on a single contract is $1,914. Use of options is advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a current uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Cocoa May 2100 Put and Sell (1) Cocoa March 2150 Put @ 10 to the sell side or greater.

o 1 o 2 o 3 0 4 o 5

Calendar Spread

What the Dec. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -0.16 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.58 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the far, sell the near point.

If you were going to place this order using pre-defined spreads, the order might look like:
"SELL CC-M FTS +Z7, -N8 Cocoa Future Time Spread Futures Compound IPE".

...and you would place that order as GTC with a limit of -16.

Level Table:

Level Table

The path of least resistance is up.
 29.0|                                                                  T 10/ 4
 ICE - Dec-17 Cocoa, 10 metric ton $100/ton  Cm.=0.03  Lim.= 1.5
 17.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.860
       1 1 1 1 1 1 1                                     1           1
       0 0 1 1 2 2 2 1 1 2 3 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0           0
       0 1 0 1 0 1 3 1 3 1 0 1 2 1 2 1 2 0 2 1 2 0 2 0 1 0           0
       6 9 2 6 1 5 0 7 1 4 1 5 9 2 7 1 5 9 3 0 4 7 1 5 9 3           4

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day (10/4).

Intraday Chart

                 Risk Versus Opportunity Report

                     CCZ7    December Cocoa

                      High Price:  2263
                   Current Price:  2078
                       Low Price:  1988

                            Risk:  0.085
                     Opportunity:  0.174

                    (O/R) Ratio =  2.056

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table + 1
Other Factors + 1
Total + 4
Place 7 December Cocoa on a Buy Watch with stoploss @ -1.21 below the get-in point when recent price is represented as "20.78".