Cocoa, A King Among Commodities, Finally Gives Way To A Ripe Buying Opportunity

I last wrote about cocoa in July, 2015 in a piece called “Even Cocoa Starts to Waver In the Face of the Collapse In Commodities.” I wrote that iPath Bloomberg Cocoa SubTR ETN (NIB) had met my price target for selling, and I awaited my next entry point. I passed up two subsequent dips, but particularly ripe buying opportunity has finally arrived…

The iPath Bloomberg Cocoa SubTR ETN (NIB) held up OK in 2015 but a 200DMA breakdown in January gave way to a quick 10% loss.

This monthly chart shows NIB has managed to recover from lows late 2011 to 2013, but remains ff the 2011 high

Source: FreeStockCharts.com

Cocoa has been a resilient commodity given favorable supply and demand conditions. For example, Bloomberg reported the cocoa crop fell to a 5-year low in the 2014 to 2015 growing season. So, it makes sense that prices remained lofty.

The International Cocoa Organization (ICCO) noted in its December, 2015 Monthly Review of the Market that cocoa prices increased 10% in 2015 while the Dow Jones Commodity Index declined by 19%. That divergence is quite significant. Generally, demand for cocoa continues to ride a secular uptrend while supply experiences strong seasonal tugs and pulls. As far as I can tell, the current decline in price has not come from fears of oversupply or a sudden drop in demand. Instead, it looks like cocoa is just suffering from a bit of “catch-up” to the on-going collapse of commodities across the complex.

Here are the two main points from the ICCO’s latest report along with some editorial from me…