Cocoa Plunges as Exchange Curbs Volatility

Cocoa prices tumbled to their lowest point in over a week, with the most-active contract shedding nearly 5% in London. Bloomberg reports that traders are adjusting their positions in response to new measures implemented by Intercontinental Exchange Inc. (ICE) to curb market volatility.

ICE Futures Europe on Tuesday lowered the contract's "accountability levels," the threshold at which traders must disclose more information about their positions. This new policy, effective January 13, aims to reduce price swings in the cocoa market.

"A simple reading of the circular suggests that if you are a non-commercial player, then you'll probably be required to be within the accountability level by Monday," said Jonathan Parkman, head of agricultural sales at Marex Group, to Bloomberg. "I can see the logic behind it but whether it ultimately delivers what the exchange wants, which is lower volatility, then that we'll have to wait and see."

Parkman noted that the update does not necessitate the immediate liquidation of positions exceeding the accountability levels, as traders may be justified based on hedging physical volumes.

Cocoa futures enjoyed a remarkable surge last year, nearly tripling in value, driven by renewed supply concerns. The significant price rally, however, has increased the cost of maintaining positions, prompting some traders to exit the market. This decreased liquidity has contributed to increased price volatility.

London cocoa fell 3.6% to £1,865 a ton, while New York futures slumped by 5.4%. Robusta coffee and white sugar also saw declines.

The ICE's move is designed to improve market stability by increasing transparency and potentially deterring excessive speculation. However, the effectiveness of these measures in curbing volatility remains to be seen. Some market observers argue that the focus should be on addressing the underlying supply issues rather than simply attempting to dampen price swings.