Cocoa is one of the most popular commodities in the market. It is used in the manufacture of confectionaries and beverage products. Therefore, if you have a sweet tooth, chances are that you consume cocoa-made products regularly. Unlike other agricultural products like corn, cocoa is mostly a discretionary commodity.
As a discretionary commodity, the product has seen its demand grow as global population and improved economic growth. This demand has mostly come from Asian countries like India and China. Demand in Western countries of Europe and the United States has remained steady.
60% of the world’s cocoa production comes from Western Africa. This cocoa is mostly traded in the City of London. This is because of the close proximity of London to the West African countries and the fact that the two regions are in similar time zones. This means that the value of sterling pound has a role to play in the price of cocoa. When the price of sterling falls, the price of cocoa tends to rise.
After falling to a low of $1982 in August this year, the price of cocoa has risen to $2380 per tonne. This level was reached overnight. This is a 20% gain. The reason for the increase in the price of cocoa is mostly because of the estimated slowdown in supply in West Africa. It has also been attributed to the improvement in the Brexit negotiations. Just last week, the Brexit minister said that a deal may be made in the coming weeks. A Brexit deal may ease the pressure in Europe which is a key market for cocoa. The increase was also influenced by technical, which showed that the price was oversold.
As of this writing, the price of cocoa has reached $2381, which is the highest it has been since the end of August this year. This price has created a cup pattern, which is an indication that it could fall as it completes the cup and handle pattern. If it does this, the price may test the important support of $2300 as shown below. If it does this, it will then accelerate the upward trend.