Cocoa market- Just crowded or a bubble?

You can't have a bubble without an initial catalyst. There usually must to be a fundamental story to start prices moving higher, but then expectations have to takeover. Narrative drives price extremes. The narrative is grounded in truth, but the reality reaches for extreme.

From Barchart, "The Ghana Cocoa Board cut its 2023/24 Ghana cocoa production estimate to a 14-year low of 650,000-700,000 MT from a previous forecast of 850,000 MT, citing smuggling and unfavorable weather." This is a big move down. There is a supply problem with El Niño weather, strong demand, and just poor crop management.

We will note that there will be stages to market extreme. From shock, there needs to be a trend, from trend there needs to be crowdedness, and from crowdedness there needs to be extreme, the bubble. Yet, is it a bubble if there is a fundamental narrative? When is a crowded trade a bubble trade? Hard to say.

The market is in backwardation with current cash prices at 6,651 and one year futures at 5220 which is a decline of over 20 percent.  For those who want to get on the chocolate bandwagon, think again. Noncommercial long have actually decreased and commercial net trades have reduced shorts. Higher volatility has made the long trend trade less attractive albeit still profitable. Cocoa futures are up 55% since the beginning of the year. The prices are at decade extremes, yet the extra stretch may be limited.