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Commodities

Cocoa Jumps Most Since May on West Africa Dry Weather Fears

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Cocoa beans at Alain Ducasse's chocolate factory in Paris, France, on Monday, April 22, 2024. Cocoa production is expected to recover next year as the impact of El Nino fades, Marijn Moesbergen, sourcing lead at Cargill, said at the World Cocoa Conference in Brussels. Photographer: Cyril Marcilhacy/Bloomberg (Cyril Marcilhacy/Bloomberg)

(Bloomberg) -- Cocoa futures soared as much as 12% in New York, the biggest intraday jump in three months, as dry weather in the world’s top producers fuels concerns about output in the upcoming season. 

The most-active contract reached $7,525 a ton Friday, on course for a weekly gain of more than 10%. Top growers Ivory Coast and Ghana have seen a “significant decrease in shower activity” over the past month, leading to below-normal soil moisture and limited crop growth, said Brandon Fox, an operational meteorologist at Maxar Technologies Inc.

“If more rain doesn’t fall during the last week of August, then it would not be a great end to this growing season,” Fox said, noting that models continue to indicate below-normal rain for the next two weeks.

Still, analysts expect a recovery in West Africa’s cocoa production in the season starting in October, helping to flip the market into a surplus. Wetter conditions if a neutral La Niña pattern takes hold later this month could allay weather concerns, said Cade Groman, a forecaster at Commodity Weather Group. Showers are expected to be closer to normal next month, but October is “currently leaning drier,” Groman added.

Interpretations of the weather’s impact have also been mixed. Some have seen “above-average rainfall raising the risk of disease,” so weather’s effect is difficult to gauge, said John Goodwin, a senior commodity analyst at ArrowStream Inc.

Markets could be overreacting to the weather forecast, said Michael McDougall, managing director at Paragon Global Markets. “A problem could be building,” but the price move could also “show how sensitive the market is to any supply issue now,” he said.

Futures may gain more upward momentum if they rise above $7,557 a ton, breaking a downward trend over the last few months. Otherwise, prices could “easily fall back down,” McDougall said.

Meanwhile, arabica coffee fell in New York as traders continued assessing the risk of frost in top producer Brazil that pushed markets higher earlier this week. 

“Should frost risk prove to be minimal as the charts indicate, the coffee markets may seek a correction on the downside,” said Thiago Cazarini, president of Cazarini Trading Co. “But if a Brazil frost strikes this market, we could see coffee prices climbing to rival all-time highs.”

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