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CSCE cocoa bounces back to close higher

NEW YORK: CSCE cocoa futures finished higher on Tuesday as prices corrected from new lows set during Monday's speculative sell-off, traders and brokers said.

"We had a little arbitrage buying coming in. Sterling was a little steadier so that more or less takes out the arbitrage pressure we've seen in the last few days and that kind of helped the market breathe a little bit," said one broker with a trading house.

Benchmark May settled up $10 at $785 a tonne after trading $797-778. Front-month March ended $8 higher at $748 after trading $760-742. The spot contract entered its month-long notice period Tuesday.

Back months closed up $3 to $7, with July 2000 setting a new contract low in early trading of $803 due to early arbitrage selling.

Cocoa bean futures opened higher and moved progressively upwards during morning activities, gaining strength from a slowdown in the relentless arbitrage selling in March and May deliveries which had recently put prices under pressure.

Profit taking by funds and scale-up trade selling kept the market in check, along with further speculative selling later in the day, which prevented active May from breaching $800.

"The fact that we didn't have any follow through from yesterday's loss shows that there's some sort of a chance for a recovery," said Mike McDougall, vice president of the Brazil desk at Fimat Futures New York. "But you need to get above $817 in the May to show anything remotely positive at this point in time. It's too early to say if it's found a bottom."

Another senior U.S. broker said negative pressure in the markets should begin to ease because West African origins have sold more than 70 percent of their current crops.

"I think the (Ivorian) crop's going to be a lot bigger than they (New Caistab) think, but they've certainly sold enough to take the downside risk away from the market," he said. "I'm not very bullish now, but I'm certainly not bearish anymore. I think the market could see a bit of a rebound."

Open interest in March decreased by 5,133 lots to 5,577 lots as of Feb 14, while in active May it swelled by 6,206 lots to 46,582 lots.

LIFFE cocoa ended near session highs in spread-dominated dealings. May last traded five pounds firmer at 568 pounds a tonne.

Technically, traders said nearby support for CSCE May should be at $775, with resistance at $800, then $826.

Volume was an estimated 8,389 contracts against Monday's tally of 28,687 lots.-Reuters