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Why Cocoa ETFs are Hitting 52-week Low?

Cocoa ETFs – iPath Bloomberg Cocoa Subindex Total Return ETN NIB and iPath Pure Beta Cocoa ETN CHOC – have touched a 52-week low and are down nearly 32.7% and 30.4% from their 52-week high prices, respectively. In the last trading session (as of December 6, 2016) NIB and CHOC fell 1.1% and 0.7%, respectively in contrast to the broad agricultural ETF - PowerShares DB Agriculture Fund DBA which gained 0.7%.

Cocoa ETFs have been going down  for quite some time now. In the past three months, NIB (down 20.4%) and CHOC (down 18.4%) have fallen considerably (see all Agricultural ETFs here).

One of the primary reasons for the slump in cocoa ETFs is a bearish supply outlook. Top cocoa producer Ivory Coast is planning to increase the supply of the commodity. As per Reuters, Ivory Coast plans to increase the volume of cocoa that can be sold to foreign buyers who have no presence in the country to 400,000 tons from 220,000 tons. Meanwhile, exports from Indonesian island Sulawesi more than doubled in November.

At the start of the new crop season, there were worries about lower yield in the mid-crop season owing to prolonged dry weather in the key growing region of Ivory Coast. However, the tailwinds put the cocoa market in an upward trajectory and showered gains on cocoa ETFs. Contrary to the fears, the season witnessed impressive production (read: What Pushed Up These Agricultural ETFs?).  

The outcome of the hotly contested elections in Ghana, the world's second largest cocoa producer will have an impact on the exports of the country and thus can influence the cocoa market.

On the other hand, demand for cocoa is also increasing. It is predicted to rise 30% by 2020, thanks to rising income in emerging markets like India and China, combined with anticipated economic recovery in developed countries (read: Forget Chocolates, Gift Your Valentine These Precious Metal ETFs).

Therefore, NIB and CHOC can be considered bets of the hour at their low prices but market dynamics should be closely monitored if anyone wishes to hold these for long. Both NIB and CHOC currently have a Zacks ETF Rank #5 or ‘Strong Sell’ rating with a High risk outlook.

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PWRSH-DB AGRIC (DBA): ETF Research Reports
IPATH-PB COCOA (CHOC): ETF Research Reports
IPATH-BB COCO (NIB): ETF Research Reports
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