COCOA Analysis: Higher Ivory Coast output bearish for cocoa price

December 6, 2019

By IFCMarkets

Higher Ivory Coast output bearish for cocoa price

Cocoa production is up in Ivory Coast. Will the cocoa price decline?

Ivory Coast cocoa production is up in October: cocoa grinders processed 4.4 % higher beans compared to the same period last season. Grinders processed 47,000 tons of beans from the start of the season on October 1 to the end of October compared to 45,000 tons for October of last season, according to exporters’ association GEPEX report. Ivory Coast is the world’s top cocoa producer. Higher cocoa production in bearish for cocoa price. At the same time dry weather in Ivory Coast is an upside risk for cocoa. In the center-western region rainfall was 3.5 millimetres (mm) last week, 1.4 mm below the five-year average. And rainfall has been low in central, southern and northern regions too. Farmers are concerned the dry Harmattan winds from the Sahara may result in lower yields as Ivory Coast entered the dry season running from November to March when rain is scarce or light.

COCOA rises above MA(200) 12/6/2019 IFC Markets Technical Analysis Chart

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On the daily timeframe the COCOA: D1 has been rising after retracing lower following price closing at 17-month high three weeks ago.

  • The Parabolic indicator has formed a sell signal.
  • The Donchian channel indicates no trend: it is flat.
  • The MACD indicator gives a bearish signal: it is above the signal line and the gap is narrowing.
  • The RSI oscillator has formed a bearish divergence.

We expect the bearish momentum will resume after the price breaches below the lower Donchian bound at 2529. A price below that level can be used as an entry point for a pending order to sell. The stop loss can be placed above the upper Donchian bound at 2671. After placing the pending order, the stop loss is to be moved to the next fractal high, following Parabolic signals. By doing so, we are changing the expected profit/loss ratio to the breakeven point. If the price meets the stop loss level (2671) without reaching the order, we recommend canceling the order: the market sustains internal changes which were not taken into account.

Technical Analysis Summary

Order Sell
Sell stop Below 2529
Stop loss Above 2671

Market Analysis provided by IFCMarkets