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CSCE cocoa ends at 5-week high, funds cover shorts

NEW YORK: CSCE cocoa futures continued to rally on Friday on fund short-covering and good speculative buying, although industry, trade and hedge selling creeping in at the top end kept the market in check.

"The nature of the rally is short-covering and the market has been able to rally so much, in such a short time, because there has been no selling at those levels," one senior trader with a New York-based commodity house said.

Cocoa bean futures plunged to new lows only one week ago, when benchmark May closed at $759 a tonne, but has since staged a reversal, increasing by 11.3 percent as of Friday's close.

Active May rose another $24 to $845 a tonne, having traded between $850, its highest level since January 28, and $828. July cocoa rose the same to $866, while spot March gained $14 to $805.

The rest of the board added on $25-$27 a tonne.

Bean prices gapped higher when the market opened on follow- through speculative buying, with arbitrage buying also firming up prices.

Arbitrage selling, along with industry and trade selling and profit taking, as well as some hedge selling surfacing at the highs, put the market under pressure around midday, traders said.

"It was pretty choppy at some points, but we finished up strong. The specs came back here. Technically it's very constructive," one broker said.

"Today I think there was a fair amount of producer selling. I think Ghana was the key seller. Up to now they had no reason to come and sell," the senior trader said.

But he warned that if producer selling interest continued into next week, both London and New York cocoa futures "would adjust accordingly."

"You will see a retracement in London to about $600 and New York should go back initially to $805-$800," he said.

"If the market fails here, you'll see it go back to the bottom of the range quickly."

Some traders said that with the intense fund activity in May cocoa over the last few days, the net speculative position of large funds would now be long.

The previous CFTC Commitments of Traders report showed that non-commercials were holding a net short position of 6,111 lots as of February 22, although the combined speculative position at that date was around 15,000 lots net long.

But another trader said that large funds would have actually been holding a much larger net short position at the end of last week, as the Commitments report did not take into account last Thursday's and Friday's liquidation.

LIFFE cocoa ended higher on Friday, but came under pressure from arbitrage selling and earlier origin sales, having reached 14-week highs in the morning.

Active May gained 10 pounds to 630 pounds a tonne, having traded between 649, the market's highest since November 30, and 630 pounds.

Volume traded on Friday was estimated at 12,288 lots, compared to Thursday's official tally of 9,872 lots.

Traders pegged support in CSCE May at $835, followed by a gap at $828-26 and then $815-10, while nearby resistance was seen at $867, with "very good resistance" seen coming in at $882-95.

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