Cocoa ETF Rallies Nearly 9% on Supply Concerns

January 9th at 4:05pm by Tom Lydon

Cocoa related exchange traded notes surged Monday as a national strike in Nigeria, the fourth largest producer of the soft commodity, and poor weather conditions pressured the supply outlook.

The iPath DJ-UBS Cocoa Subindex ETN (NYSEArca: NIB) was up 8.5% at last check Monday, and the iPath Pure Beta Cocoa ETN (NYSEArca: CHOC) was 4.4% higher.

Cocoa futures rose 7% Monday, their largest gain since October 2009, reports Marvin G. Perez for Bloomberg.

In 2011, cocoa pries plummeted 31%, the largest annual decline since 1999, on higher output from the Ivory Coast, the world’s largest supplier of cocoa.

Cocoa prices spiked after Nigerian workers began a national strike Monday. Disgruntled workers aren’t getting enough pay since prices have fallen more than 40% and the government removed fuel subsidies, which left farmers with higher costs.

“Whenever you see a country being immobilized, you run the risk of exports not moving at all,” Hector Galvan, a senior commodities broker at RJO Futures, said in the Bloomberg report. “Nigeria is not Ivory Coast, but when all is said and done, it’s one of the top producers.”

The high cocoa prices may also be attributed to dry desert Harmattan winds in the Ivory Coast and robust fourth-quarter grind figures, according to a Wall Street Journal report.

“Monday’s price surge is also linked to the cocoa market consolidating after last year’s severe declines brought on by concerns of ample supplies from West African cocoa producing countries,” Sudakshina Unnikrishnan, agriculture analyst at Barclays, said in the WSJ article. “Partly markets are finding a footing now as all eyes turn to the upcoming grind figures issued by the European Cocoa Association this week.”

The Rabobank International projects supplies will fall behind demand by 29,000 tons in the season started Oct. 1. Additionally, the bank expects the shortage to increase if weather in West Africa turns “unconstructive.”

“The market may have overshot on the downside and now as these concerns increase we are seeing prices rebounding,” Keith Flury, senior softs analyst at Rabobank, said.

iPath DJ-UBS Cocoa Subindex ETN

For more information on cocoa, visit our cocoa category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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