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CSCE cocoa ends near new lows, specs liquidate

NEW YORK: CSCE cocoa futures fell sharply Monday to settle back down at more than 25-year lows after speculative liquidation ahead of March contract's first notice day triggered stops below the market, traders and brokers said.

"It was the large spec (speculative) longs in March that got flushed out. They were the dominant selling force of the day," one broker with a trading house said.

Front-month March settled down $19 at $740 a tonne after trading $764-735, a new life-of-contract low. Benchmark May tumbled the same to close at $775 after trading $800-773, also a new contract low. Back months lost $16-20.

Cocoa bean futures came under early pressure from arbitrage selling, notably in back months, with some trade and industry buying coming in to support.

But prices spiraled ever lower as speculators clambered to liquidate their long positions in front month March ahead of Tuesday's first notice day, brokers said.

"They really needed to get rid of it by this evening. If they did not...they would likely get delivery," one trader said.

Open interest in March decreased by 3,562 lots to 10,710 as of Feb 11, whilst it rose by 2,913 to 40,376 lots in active May.

London's LIFFE cocoa ended at the bottom of a tight range with afternoon volume boosted by switches. Front month March last traded eight pounds down at 528 pounds a tonne.

A plan by Ivory Coast's new Caistab commodities regulator to withdraw 100,000 tonnes of 1999/2000 mid-crop cocoa beans was largely ignored by the U.S. market.

"I didn't hear anything about that and in any case it didn't seem to have had any effect on the market," one floor trader said.

In other news, the dry and dusty Harmattan wind which blew over Ivory Coast in the first 10 days of February dehydrated soils in the main cocoa growing area of Daloa, but other growing areas were still reasonably humid.

An Abidjan-based agro-meterologist said the situation would only become worrying if the dry spell persists up to the end of the month -- which he did not expect.

Technically, traders put nearby support for May be at $775, with resistance at $826.

Volume was an estimated 27,654 lots against Friday's tally of 18,851 lots.

The nine-day relative strength index (RSI) of May cocoa slid to 24 at the close, compared to 34 on Thursday.

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