Commodities across the board have had a difficult time in the last few years. A slowdown in Chinese growth and Saudi Arabia’s decision to abandon production limits have crushed commodities from oil to metals. Agricultural commodities have also had their share of difficulties as favorable weather conditions have supported record yields in corn and sugar. Supply-led price declines are particularly difficult to recover from because it can take a long time for the market to find an equilibrium. Cocoa has been an anomaly as supply issues in major producers have limited stocks while a growing middle class in emerging markets have helped support the demand side.
After a standout year in 2015, cocoa has given back some of those gains in early 2016 as demand is being questioned in light of global growth concerns. Investors are also questioning whether rising prices will hurt consumption. “Grinding” data is a proxy for demand for cocoa, and current data suggests the upward trend in cocoa is likely to stay in tact. European is a large market for cocoa and grind data topped forecasts which supports increasing demand. On the supply side, the Harmattan winds have stressed crop production in the largest producers. These conditions suggest a rebound in prices from current levels.