20000331

CSCE cocoa stumbles again as speculators sell

NEW YORK: New York cocoa futures closed sharply lower on Wednesday, in a mainly technical move which wiped out the previous session's modest correction, as speculative funds dismissed unrest in Ivory Coast and continued to sell.

"It (market) just kind of changed its complexion once London closed and I think the ring was more or less long. Everyone was expecting New York to pick its head up once London closed and it never materialised," one New York-based broker said.

Active May lost $19 to $796, having traded $833-792, whilst second-month July shed $20 to $826, trading in a $863-822 range.

The rest of the board fell by $17 a tonne each.

Speculative short-covering and steady trade buying saw active May pushed up to intraday highs in morning activities, traders said.

But once London's LIFFE cocoa futures market had closed, the buying reversed and speculators continued their selling spree.

"You just vacuumed really down from $815 to $805 (May basis) and once it took out unchanged, there were a series of commission house-type stops and very little buying on the books," brokers said.

"The specs just kept laying into it on the sell-side...once it was back below $800, that brought in even more fund-type selling."

Traders and brokers said that the market brushed aside a potential strike by farmers in top cocoa grower Ivory Coast from April 1.

"They seemed to buy a little bit on that yesterday, but today it looks like the technicals came right back into control here," one broker said.

Although traders also seemed to shrug of news reports of further unrest in the world's top cocoa producer, Ivory Coast, one senior trader said that the market may be underestimating the problems in the long term.

On Wednesday, a group of Ivorian soldiers staged a brief mutiny in a barracks at the western cocoa town of Daloa, during which one loyalist soldier was shot dead.

"At the moment, no (they are not worried). But I believe that over time, the market is underestimating the risk in Ivory Coast by a long, long shot," the trader said.

"The situation could substantially deteriorate. But at this point in time it does not make any difference (to the market)," he added.

"The cocoa is there, it has been hedged, the specs have their longs in place and there is enough physical cocoa in the pipeline. Ivory needs to ship because they need the cash flow."

Traders said that immediate support for May cocoa was pegged at Tuesday's low of $786, then $884-770, followed by the contract low of $756. Resistance is seen at the psychological level of $800, then $833, $845-50.

Volume traded on the CSCE Wednesday was estimated at 9,639 lots, compared to Tuesday's official tally of 8,417 lots.

"I think people will be disappointed about the move today. But if you look at it technically, it makes perfect sense," one trader said.

The CSCE is a subsidiary of the New York Board of Trade.-Reuters