(Bloomberg) -- The cocoa market was whipsawed by extreme volatility in the futures market on Tuesday amid a lack of liquidity.

After more than doubling this year, futures traded in New York experienced a historic crash this week, at one point falling as much as 27% for the biggest two-day decline in data going back to 1960. Prices then reversed later on Tuesday, trading up for the day.

“Did anything shift fundamentally in the market? No,” said Jonathan Parkman, head of agricultural sales at broker Marex Group. “What these moves demonstrate is that liquidity is getting squeezed out of the market and that’s why we are seeing these massive moves.”

This week’s retreat is a stark turnaround for a market that has seen prices surge to break record after record as bad weather, aging cocoa trees and crop disease affect West Africa, which accounts for more than half of global output.

On Tuesday, cocoa futures traded in New York for July delivery fell as much as 13%, dipping below $8,000 a ton for the first time in more than a month. They then erased that slump, and traded 2.2% higher as of 11:30 a.m. local time.

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Just earlier this month, New York futures exceeded $12,000, making the commodity more expensive than copper on a per-ton basis.

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The big jump in prices earlier this year has meant traders — including those who’ve hedged against physical holdings — have had to come up with more money to pay margin calls, which work as an insurance policy to cover potential losses. When they can’t do that, they’re forced to close out positions. That has helped push down open interest, or the number of outstanding contracts, curbing liquidity.

It has also make it harder for chocolate companies to “add forward physical and price cover in thin liquidity,” JPMorgan Chase & Co. analysts including Tracey Allen said in a report.

The magnitude of this week’s price drop was a surprise, although the declines could prove short-lived because the fundamental picture hasn’t changed, said Fuad Mohammed Abubakar, head of Ghana Cocoa Marketing Company UK Ltd., a subsidiary of the country’s regulator.

“The market action in the last three days goes to show the fall is always easier and faster than the climb,” he said.

Prices may rebound from current levels. Pierre Andurand, a hedge-fund manager best known for his oil wagers, bet on higher cocoa prices ahead of the massive recent surge. He has forecast futures to break $20,000 this year. Others are less bullish.

“While further short-term hikes should not be ruled out, over the medium term when the deficit eases, we look for prices to decline to around the $6,000 mark,” JPMorgan’s Allen said.

Cocoa supplies are forecast to fall short of demand for a third year through the season that ends in September. Acute shortages have already prompted top growers Ivory Coast and Ghana to delay deliveries.

Still, there are signs that the worst of the crunch may have passed. Both Ivory Coast and Ghana have raised the price paid to farmers in a bid to get growers and middlemen holding back beans to sell. More recently, Ivory Coast moved to avoid a wave of cocoa-export defaults with a plan to compensate shippers for losses.

“The shift in stance by Ivory Coast will perhaps unlock some forward selling, but one can also argue that nobody wants to buy forward anyway because of the cost of carrying the hedges,” Parkman said. He added that the expiry of options was also an influence in the current bout of market volatility.

High prices are starting to hurt demand. Sales of Mondelez International, maker of Oreo cookies, are projected to be flat year-on-year as the company faces mounting cocoa costs, inflation-strapped consumers and disruptions from pricing negotiations in Europe.

Lower cocoa prices would offer some relief to chocolate makers, who have seen costs soar and have been scouring the world for cocoa beans. Shares of Barry Callebaut AG, which supplies some of the biggest consumer chocolate brands, climbed as much as 7.8% on Tuesday. Lindt & Spruengli AG’s stock also rose.

In New York, the price gap between cocoa for delivery in May and July has started to come down. That’s even as the earlier-dated futures represent the cheapest cocoa in the world. Some analysts expected that traders would try to secure a bigger delivery on the New York exchange. 

Read More: Why Cocoa Prices Spiked, What It Means for Consumers: QuickTake

Looking forward, the end of the El Nino weather phenomenon could help harvests recover next year, Marijn Moesbergen, sourcing lead at Cargill Inc., said at the recent World Cocoa Conference in Brussels. Prices may have overshot and the market needs to find a new equilibrium between supply and demand, he said.

The potential for a La Nina could also help, as West African production often increases under the weather pattern. That would combine with rising production from countries including Brazil and Ecuador, where prices aren’t controlled by governments like in West Africa and growers are talking full advantage of rising prices.

--With assistance from Megan Durisin.

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