Commercial traders have been strong buyers of cocoa futures beginning mid-February. We first mentioned it in, “Cocoa Futures Ready to Soar” in early April as pressure started to build. Finally, near the end of May, the market is behaving as expected.
We’ve seen the commercial trader category of the CFTC’s weekly Commitment of Traders report on the buy side in 12 out of the last 13 weeks. With net purchases totaling more than 60,000 contracts. The net purchases total is nearly a 30% turnover of the market’s total open interest. This is a huge shift in sentiment and marks the highest degree of commercial buying since July of last year when the market was trading $800 per ton lower than the current price. You can see their actions on this cocoa future with commercial trader position chart.
Finally, lest we begin to think the commercial traders have completed their buying we should note that in 2012 their net buying totaled another 70,000 contracts. Therefore, their net buying potential still has considerable room to grow. We believe the next price target will be near $3,200 per ton. This would be high enough to flush the recent shorts out of their positions while still maintaining an orderly progression to the market as it trades near the resistance levels left from the 2011 rally around $3,700 per ton.
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