Cocoa caps volatile week marked by Hershey bid for big purchase

Cocoa headed for a weekly decline in New York, after a volatile few days that included chocolate maker Hershey Co.’s bid to source a huge amount of beans through the exchange.

Futures slipped as much as 3.6% on Friday and end the week down 3.18%. Whipsawing prices have pushed a 30-day measure of historical volatility to a four-month high.

On Thursday alone, prices soared as much as 10% before paring some of the gain, as traders digested Hershey’s request for permission to make a large purchase though the ICE Futures U.S. exchange.

The company wants to take a position that will allow it to buy more than 90,000 tons of cocoa – equating to about 5,000 20-foot containers – Bloomberg reported.

Hershey’s request signals a nervousness among cocoa buyers about tightening supplies in the physical market, according to market veteran Marc Donaldson, former managing director of Asia Pacific at Barry Callebaut AG.

Also this week, ICE Futures Europe took steps to tame market volatility by lowering the London cocoa contract’s so-called accountability levels, the threshold for when traders need to disclose more information about their positions. The new policy takes effect Jan. 13.

The policy change “will impact large speculative traders and could lead to a wave of long liquidation in the London cocoa contract over the next few sessions,” ADM Investor Services wrote in a note.

New York futures hit a record high last month on mounting worries about a global shortage. The rally has curbed liquidity to the lowest in over a decade, as margin calls climbed and positions became more expensive to maintaining. That low futures liquidity has added to the wild price swings.

“Due to the high volatility, market participants are holding back on activities,” Commerzbank AG analyst Carsten Fritsch said in a report. “A normalization is therefore not to be expected for the time being.”