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CSCE cocoa closes higher-fund, arb, industry buy

NEW YORK: CSCE cocoa futures came back up to settle just underneath the intraday high Wednesday, gleaning support from fund, industry and early arbitrage buying, traders and brokers said.

"I think the inspiration came early from the CRB index.You had fund-related buying on that basis early this morning," one trader said.

Front-month March settled $17 higher at $784 a tonne after trading $785-767, recouping all the previous day's losses.

Second-position May CCK0 rose $14 to $810, having moved in a $812-$796 range, and the rest rose $9-15.

Traders said early speculative buying, coupled with fund and arbitrage buying of May, as well as some industry price-fixing "reinforced support" early on.

"In London the May-July switch narrowed radically and the by-product of that was arbitrage buying in New York," one of them said.

Some light speculative selling knocked prices back, before they gradually crept back up throughout the rest of the session, with heavy March-May switching providing additional upward momentum.

Funds are currently rolling out of the front month ahead of first notice day on February 15. Open interest in March decreased by 3,563 lots to 21,446 as of Feb. 8, whilst it rose by 2,159 to 34,006 lots in active May.

London's LIFFE cocoa ended slightly higher on Wednesday as spread trading continued to dominate proceedings. March LCCHO last traded two pounds up at 535 pounds a tonne.

In other news, Ivorian cocoa farmers' leaders say they will set up a privately run forward sales and price stabilisation system for cocoa which should be operational by March.

The cornerstone of the system would be a local cocoa bourse, trading in certificates which would also carry export rights.

But there was no indication as yet where the money would come from to back the new system.

"The larger exporters are not going to go for it. They're happy doing what they're doing," one New York-based trader said.

Trading sources have generally been very sceptical about any attempts by the world's top cocoa producer to establish a credible forward sales system without government backing.

Technically, traders said nearby support for March cocoa should be at $750 and then $725.

Traders pegged nearby resistance in the contract at $ 790, $800, then $814.

"My feeling is that as long as we're at these price levels, we're just going to work our way lower. New York needs to get over initially $794 and then $815 on the March," one trader said.

Volume traded Wednesday reached an estimated 17,559 lots against the previous official volume of 15,414 lots.

The nine-day relative strength index (RSI) of March cocoa stood at 49 at the close, compared to 23 on Tuesday.

Technicians normally believe an RSI reading of 30 or less is an indication that the market is oversold, while 70 or more is usually a sign it is overbought on a short-term basis.-Reuters