Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Soft Commodities: Cocoa Could Be Taking The Bullish Baton

By Andy HechtCommoditiesAug 27, 2021 09:38
uk.investing.com/analysis/soft-commodities-cocoa-could-be-taking-the-bullish-baton-200494892
Soft Commodities: Cocoa Could Be Taking The Bullish Baton
By Andy Hecht   |  Aug 27, 2021 09:38
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The article was written exclusively for Investing.com

  • Coffee rises to the highest price since 2014 in July
  • Orange juice moves to a multi-year peak
  • Sugar and cotton rise to the highest prices in years in August
  • Cocoa is showing signs of bullish life
  • Levels to watch in the cocoa market - NIB is the cocoa ETN product

The tidal wave of central bank liquidity began in early 2020 when the Fed cut the short-term Fed Funds rate to zero and began buying debt securities to the tune of $120 billion per month. As of August 2020, the monetary policy stance has not changed. Government stimulus in the trillions has been a tsunami over the past fifteen months. The current US budget and new stimulative initiatives, including infrastructure rebuilding and other programs, will continue even if the Fed tightens credit because of rising inflationary pressures.

The bottom line is that the inflationary seeds from monetary and fiscal stimulus have been blooming over the past year. Commodities are highly sensitive to the economic condition as inflation erodes money’s purchasing power, causing raw materials costs and prices to rise. Gold, a leading inflation barometer, rose to a record high at $2063 in August 2020. While gold corrected, it passed the bullish baton to other commodities. Earlier this year, grain prices rose to over eight-year highs as corn, soybeans, and wheat soared. In May, lumber, copper, and palladium reached new record prices. Energy prices rose to multi-year highs over the past months.

In July, the soft commodities began to rise as the bullish baton passed to the sector of luxury commodities. Coffee, sugar, cotton, and even frozen concentrated orange juice futures (FCOJ) have already reached multi-year highs. Cocoa, the primary ingredient in chocolate confectionery products, could be the next soft commodity to soar. The iPath® Bloomberg Cocoa Subindex Total Return (SM) ETN (NYSE:NIB) moves higher and lower with the price of ICE cocoa futures.   

Coffee rises to the highest price since 2014 in July

In April 2019, nearby ICE coffee futures reached the lowest price since 2005 at 86.35 cents per pound. The first clue that something was percolating in the coffee market was when the soft commodity fell to a higher low at 92.70 cents in June 2020 during the height of the global pandemic.

The bullish stars lined up for the coffee futures market in 2021 as rising inflationary pressures and a frost in Brazil pushed the price to the highest level in years.

Coffee Monthly
Coffee Monthly

Source: CQG

The chart shows that nearby coffee futures blow through the first technical resistance level at the November 2016 $1.76 per pound high as a hot knife goes through butter. The price continued to explode in July, reaching $2.1520 per pound, the highest level since October 2014 when coffee futures rose to $2.2550.

Brazil is the world’s leading producer and exporter of three soft commodities; coffee, oranges, and sugar. 

FCOJ moves to a multi-year peak

Frozen concentrated orange juice futures are the least liquid soft commodity that trades on the Intercontinental Exchange (ICE). The frost, inflationary pressures, and logistic issues caused by COVID-19 pushed orange prices to the highest price in nearly three years.

Orange Juice Monthly
Orange Juice Monthly

Source: CQG

This week, nearby FCOJ reached $1.4650 per pound, the highest price since October 2018. The trend remains higher, with the May 2018 $1.7245 the upside technical target for FCOJ prices. 

Sugar and cotton rise to the highest prices in years in August

Brazil is the world’s leading producer and exporter of free-market sugar. Sugar is both a food and a fuel in Brazil as the sweet commodity is the primary ingredient in ethanol production.

Sugar Monthly
Sugar Monthly

Source: CQG

August was a sweet month for the sugar market as Brazilian weather, inflationary pressures, and logistics lifted the world sugar futures price to 20.37 cents per pound, the highest level since February 2017. The upside target stands at the October 2016, 23.90 cents high.

Cotton Monthly
Cotton Monthly

Source: CQG

Meanwhile, ICE cotton futures prices rose to the most recent high at 97.33 cents per pound in August, the highest level since March 2014 when the peak was only two ticks higher at 97.35 cents.

Four of the five soft commodities rose to multi-year highs in July and August. The fifth is showing signs of bullish life. 

Cocoa is showing signs of bullish life

While three of the five soft commodities depend on Brazil for supplies, most cocoa beans come from West Africa. The Ivory Coast and Ghana are the OPEC of cocoa, accounting for more than 60% of the annual production of the primary ingredient in chocolate confectionery products.

Cocoa Weekly
Cocoa Weekly

Source: CQG

The weekly chart shows that after falling to a low of $2232 per ton in mid-July when the soft commodity sector was watching coffee explode, cocoa futures have risen over the past weeks, reaching $2,672 per ton during the week of Aug. 16. The high for 2021 stands at $2754. In 2020, it was at $3054 per ton.

Copper Monthly
Copper Monthly

Source: CQG

The monthly chart shows that if cocoa follows the other four soft commodities to multi-year highs, the upside targets stand at the 2020 high and the 2015 $3422 peak. In 2011, cocoa futures reached an all-time high at $3826 per ton, the ultimate upside target.

Levels to watch in the cocoa market - NIB is the cocoa ETN product

Rising inflation is supporting commodity prices across all sectors. Cocoa could be the next commodity to take the bullish baton in the relay race to multi-year or all-time highs. The most direct route for a risk position in the cocoa market is via the futures and futures options that trade on the Intercontinental Exchange. The NIB ETF provides an alternative for market participants looking to position in the cocoa market without venturing into the volatile futures arena. NIB’s fund description states:

Source: Barchart

The NIB ETN product has $17.852 million in assets under management, trades an average of 52,175 shares each day, and charges a 0.70% management fee.

Nearby cocoa futures rose from $2232 per ton in mid-July to $2672 last week or 19.70%.

NIB ETN
NIB ETN

Source: Barchart

The chart illustrates the NIB ETN rose from $26.68 to $31.71 per share or 18.9% over the same period as it did an excellent job tracking the soft commodity price.

If cocoa is set to follow the other four soft commodities performance over the past weeks, we could see the bullish baton pass to the primary ingredient in chocolate over the coming days and weeks.

Soft Commodities: Cocoa Could Be Taking The Bullish Baton
 

Related Articles

Anastasiia Scavo
Gold Is Looking for a Rally By Anastasiia Scavo - Oct 22, 2021 1

When I was recently looking at the gold prices chart from the perspective of the coming months, I saw minor indications that prices may break through the strong resistance around...

Soft Commodities: Cocoa Could Be Taking The Bullish Baton

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email