Trick Or Treat? Funds Signal Post-Halloween Chocolate Rally
Chocolates are cheaper for Halloween, but prices are likely to rebound by Christmas thanks to rising demand for cocoa beans.
A global surplus sent cocoa prices plunging for most of the past two years, which helped to temper retail chocolate costs, however, there are signs that the overhang is beginning to ebb as consumers eat away the excess.
Grindings, a measure of demand, have been climbing globally. That’s caught the attention of hedge funds, who are finally starting to back away from bets that the commodity’s slump will continue.
“Low prices are the cure for low prices,” said Harish Sundaresh, a portfolio manager and commodities analyst in Boston for the Loomis Sayles Alpha Strategies team, which oversees $5 billion.
“A combination of improving grinding demand from chocolatiers ahead of the holiday season, over-crowded short positioning and persistently low prices over the past year has improved the price outlook.”
Cocoa futures traded in New York have erased 2017’s losses. Prices were down as much as 17% in May, but cocoa was 0.1% higher at $2,141 a metric ton as of 9:48 am in New York, up 0.7% for the year.
Hedge funds held a net-short position, or the difference between bets on a price increase and wagers on a decline, of 18,446 futures and options in the week ended October 17, according to US Commodity Futures Trading Commission data released Friday. That compares with 21,560 a week earlier and was a sixth straight contraction.
Traders will also be keeping an eye on holiday demand, cocoa exports in the Ivory Coast, and a stockpile slump.