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Cocoa Market: Break or Fake-Out?

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MRCI would like to welcome Don Dawson as a new guest contributor! Don is an independent commodity futures trader with 35-plus years of experience. He has authored hundreds of articles on commodity markets and trading education and previously instructed futures classes for an international trading school for 15 years, where he received multiple awards.  Learn more as a professional futures trader shows how he has used Moore Research for 15+ years!

Cocoa Market: Break or Fake-Out?

The largest cocoa producer is the Ivory Coast of Africa, with annual production exceeding 2 million tons per year, representing 40% of the country's export revenue.
The region employs over half of its citizens in agriculture. The environment is perfect,with 75% of the land suitable for growing cocoa.
Cocoa futures trade on the Intercontinental Exchange (ICE) US and the ICE FuturesEurope Exchange. Our analysis will focus on the ICE Futures US Exchange.
2023 has been a bullish year for cocoa prices, up 15%. Support from a weaker USDollar, up 1% YTD, has contributed to this rally. The Ivory Coast government recently reported that producers sent a cumulative 2.05 MMT of cocoa to ports for the 2022/23 marketing year, down 3.8% y/y. The market has found support in reports from the International Cocoa Organization (ICCO) that the global 2022/23 stockpiles would fall, reducing supply.

Source: Moore Research Center, Inc. (MRCI)
While the fundamentals sound overly bullish, the weekly continuous September Cocoa
chart illustrates a conflicting view. Cocoa has been trading in a sideways market for
approximately six years. Currently, cocoa is approaching the top of this channel for the
fourth time, and prior attempts were rejected lower.

Will cocoa break out of this monotonous channel, or will it fake out the bulls and return
to the lower end of the channel again?
The Commitment of Traders (COT) Report Analysis

Source: Barchart
This chart represents overhead resistance (red box) just above the 6-year channel the
market has been trading in. The COT report is below the chart detailing the net position
of managed money (blue line) trading in the cocoa market. When the blue line is under
the 0 line, managed money is net short the market. When the blue line exceeds the 0
line, managed money is net long the market. During non-trending price periods, the blue
line oscillates on both sides of the 0 line.
Managed money traders are the second largest category of participants in the futures
markets behind the commercials. Their trading style is trend following, when there is
one, and can be informative in our analysis.
During sideways markets identifying prior peaks in price with the position size of
managed money can tell when managed money is near an extreme position size.
Looking to the left of the chart, some consistent peaks in position size (red arrows)
appear to be around 51K more longs than shorts, and then the market retraces from
there as money managers are not buying as aggressively.
The price has rallied strongly since last year without any significant pause. Managed
money has built a substantial long position, 49,725 net long, as the price approaches
overhead resistance and a 6-year channel high.
The question now becomes, how many more long positions will managed money put on
this trade?

MRCI Seasonal Analysis
MRCI released its special report on Historical Softs for 2023. While reviewing this
report, I found a well-timed seasonal analysis of the cocoa market that supported my
previous research discussed previously.
Due diligence and risk management are essential when trading futures. Mindlessly
taking a seasonal pattern is not recommended and may lead to excessive losses. My
experience in using MRCIs seasonal analysis is to have supporting information from
other market data research (fundamental and technical.)

Through extensive computer testing of historical data as far back as 30 years, MRCI
has found this particular seasonal trade. The above chart is the 15-year average price
pattern of the September futures cocoa contract. With the unusual strength of the cocoa
market this year, the seasonal pattern has been overridden by more powerful
fundamental events, thereby distorting the prior patterns.
After I analyzed the COT report and the monthly chart revealing a 6-year trading
channel, I felt the upcoming seasonal sell had an additional edge.
MRCI has found that the September cocoa futures contract closed lower on July 22
(green arrow) than on June 12 (red arrow), 80% of the time over the previous 15 years.
They never had a daily close in the red for three of those years. With 12 wins and 3
losses, the average profit was $560 per contract. Yes, there were losses during this

period, but each trader should use their risk management skills to avoid excessive
account size losses.
In closing……
The current trend is up, and the seasonal pattern is a sell; this becomes an immediate
red flag as it's a counter-trend setup. Wisdom would suggest that confirming a trend
change before entering is the rational thing to do.
MRCI creates optimal entry and exit dates but is not necessarily carved-in-stone dates.
Use these dates with some leeway, both pre and post-the-dates. We're building a
window of opportunity, not a rocket launch date.
An over-extended bullish managed money sector is coming into the cocoa market's 6-
year channel high with overhead resistance beyond that and could create the price
action we need, more supply than demand, to support this year's seasonal pattern.

Last Updated on Monday, 29 May 2023 12:33

Will New Supply and Seasonal Patterns Result in Lower Prices for Soybean Oil?

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MRCI would like to welcome Don Dawson as a new guest contributor! Don is an independent commodity futures trader with 35-plus years of experience. He has authored hundreds of articles on commodity markets and trading education and previously instructed futures classes for an international trading school for 15 years, where he received multiple awards.  Learn more as a professional futures trader shows how he has used Moore Research for 15+ years!


Will New Supply and Seasonal Patterns Result in Lower Prices for Soybean Oil?

By extracting whole soybeans, soybean oil is formed, requiring dehulling and crushing soybeans. This process will separate the oil from the remainder of the soybean. Soybean oil is the most widely used vegetable oil in the United States, accounting for more than half of all domestic vegetable oil use. It can be found in food products such as baked goods, snacks, cooking oils, mayonnaise, salad dressings, and processed frozen foods. In the 2021/22 marketing year, nearly 40 percent of soybean oil produced in the United States is estimated to have gone toward biofuel production, and this new demand led to record-high prices.

Wikipedia reports that Chinese records dating before 2000 BCE mention using cultivated soybeans to produce edible oil. Ancient Chinese literature reveals that soybeans were extensively grown and highly valued for soybean oil production before written records were kept.

In 2021/22, China was the leading soybean oil-producing country, followed closely by the US, supporting why China imports significant amounts of soybeans from the world's largest producer of soybeans, Brazil, as well as purchases from the US.

The multi-year La Nina weather pattern affecting South America has resulted in varying harvest expectations. Brazil anticipates a record soybean crop for the 2023 season, and contrarily Argentina is forecasting a drop in production. Market participants still expect a 6% yield increase over last year from South America.

The following table illustrates that Brazil's soybean crop planted from October to December will be harvested from March through May, resulting in new-crop supply exported around the globe.

Fundamentally, the soybean market will have to react to this new supply, possibly by lower prices.

Source: United States Department of Agriculture (USDA)

Seasonal Patterns

Moore Research Center, Inc. (MRCI) has done extensive research and found that soybean oil prices begin peaking in March and then two more rallies into April and May before succumbing to seasonal supply from the South American harvest.

The chart reflects the 15-year seasonal pattern. Due to the seasonal tendency of consistent planting and harvesting periods, we can see which months of the year are pivotal to soybean prices—creating a macro view of upcoming soybean oil behavior based on historical data.

MRCI recently released its Historical Soybean Complex analysis for 2023. While my larger picture view is bearish on soybean oil, the report offers a micro view with a more defined trading window. During April, MRCI found that shorting soybean oil has resulted in a possible 80% chance of closing lower by July.

Over my years of using the MRCI seasonal patterns, I've found that the identified patterns have positive simulated historical returns while filtering out the patterns with excessive drawdowns in the trade. This separates MRCI from other seasonal analysis companies that only consider the profit but not the drawdown during the seasonal window.

Seasonal analysis cannot be taken blindly. Traders still need to find supporting information that the pattern will be valid this year. Using the Commitment of Traders (COT) report and technical analysis may give an additional edge to the trade.

The Commitment of Traders (COT) report

Source: Barchart

The daily July soybean oil chart above illustrates the past 52 weeks of trading. The blue line represents the net position of managed money trading soybean oil. When the line trades above the zero line, managed money has more long positions than short—the opposite for when the blue line is below the zero line.

Managed money typically uses trend-following strategies. As prices go higher, the blue line increases. If prices are trending down, then the blue line also declines. Reviewing the history of managed money for the past 52 weeks, we can see they remained net long until March 2023, when they went net short. Currently, the blue box shows -14,180 more shorts than long. Indicating the longer-term trend has turned down for many of their trading strategies.

I marked the chart with a vertical green line the week the trend changed to down for most managed money traders. The significance of this line is that it gives a price area where this occurred. Notice shortly after the shift in trend how prices retraced back to that area and retreated. Could this be a significant overhead supply area with managed money wanting to sell at higher prices in the new downtrend?

The red horizontal line represents prior support in the market that has now been broken, and technical analysis says this will become resistance as price returns. The area coincides with where the trend changed for managed money.


Managed money is the second largest trading entity in the futures markets after commercial traders. Continue monitoring their short position and confirm it begins to expand (the blue line continues trending down.) The peak in soybean oil prices occurs over multiple months, be prepared for some consolidation in price if it gets back up to the resistance line. Crops and their by-products offer some of the most reliable seasonal patterns over other markets.

Last Updated on Tuesday, 09 May 2023 12:08

SAMPLE - Weekly Spread Commentary 6/14/19

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Hidden Potential?

Some seasonal strategies can make nice moves. Others may have even more hidden potential.

Consider natural gas. The season of greatest consumption is, of course, winter. That heating season runs November-March. By spring, inventories have been depleted and supply in storage is at or near its annual nadir. But large regions of the country depend on natural gas to generate electricity in order to run air conditioners during the heat of summer. Thus, there is usually a surge in demand during spring as stocks are partially rebuilt.

Last Updated on Tuesday, 03 January 2023 09:10
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Got Gas

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The March 2004 issue of "Stocks, Futures & Options" magazine ( will include an article from Moore Research Center, Inc., discussing the seasonal tendencies of gasoline and natural gas during March-May.

Few industries are more basic than energy, and few changes are more dependable than those that follow from one season to the next. So, if change creates opportunity, has the vernal equinox generated opportunities in the energy sector? If so, of what consequence and with what degree of reliability??

Last Updated on Thursday, 30 March 2023 12:14
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Find out as a professional trader discloses his seasonal pattern analysis for soybean oil.