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Reason #1: ‘Tis the season to be chocolatey
We are literally one month away from celebrating yet another Christmas.
And this is the top time of year where you, me and countless consumers will be buying chocolates.
This increase in demand, will have a positive impact on the price of cocoa…
Here’s a statement that Jack Scoville, analyst at Chicago’s Price Futures Group for “soft” commodities, has to say that coincides perfectly with the season:
“The weekly charts for cocoa imply that a significant rally is possible over the next few weeks,”
Reason #2: Thank the weather
Did you know two-thirds or 60% of the world’s supply of cocoa beans come from West Africa each year. This includes the Ivory Coast and Ghana.
You see, as cocoa is an agricultural commodity – the demand, supply and prices all have an impact based on the weather conditions and crop diseases that prevail.
Jack Scoville mentioned, for the incoming produce, that the harvest was active this week in the world’s largest growing region of West Africa, with good volume and quality.
It was also confirmed that the weather was also great for produce, due to the rain levels that West Africa received.
Jack then added, “The weather in Ivory Coast has improved due to reports of frequent showers.”
“The precipitation is a little less now so there are no real concerns about disease. Ideas are that the next crop will be very good. Both Ivory Coast and Ghana are doing what they can do boost cocoa prices.”
Reason #3: A new surcharge to boost the cocoa prices
Over the recent months, Ivory Coast and Ghana, have been working together to establish a minimum surcharge of $400 per ton for their output.
This surcharge will have more of an impact than you think. Take the leading cocoa manufacturers including Hershey, Mars, Ferrero Group, Nestle etc…
Them and other companies depend on supplies from the Ivory Coast and Ghana for the beans.
This new premium will not only lead to a rise in price but also a further increase in cash flow, production, create sustainability and will allow farmers to boost wages for their workers.
And so the chocolate manufacturers have supported the two nations decision to add the $400 per ton surcharge.
Now let’s get into the charts…
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Cocoa Futures have just broken out of its 9-month sideways range
Looking at the above daily chart of the spot Cocoa Futures price, we can see that since March 2019 the price has been moving in a sideways range between $1,640 and $1,940 (Shaded area).
Each time the price touched the $1,940 high, it then retraced back ended up making an even higher low.
This has formed what’s known as an Ascending Triangle.
This positive formation shows prices touching the same high while making higher, low prices, until there is a upside breakout.
This took place last week (red shaded area), which confirmed there was a lot more upside to come.
In fact, we can now expect the upside momentum to continue which will take the cocoa futures price to the next high at $2,238.
To find this target, we’ll simply use the High-Low calculation. This is where you take the difference between the high and the low price and you add it to the high price.
We’ll then have an indication on how far we can expect the price to head. Here’s the calculation.
Target price = (High – Low) + High
= ($1,941 - $1,644) + $1,941
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Here’s how to profit from the 15.30% cocoa futures rally
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