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CSCE cocoa weakens further, May closes under $800

NEW YORK: CSCE cocoa futures settled sharply lower on Tuesday as arbitrage and late fund selling took their toll, putting a halt to a modest recovery seen in active May over the past few sessions, dealers said.

Front months both shed $20 a tonne, with active May cocoa closing at $795 a tonne, having traded between $815 and $792.

Spot March cocoa settled at $760 and the rest of the board shed $21.

Bean prices opened lower as predicted, following weaker London cocoa values, with arbitrage selling in May and July pushing prices through sell stops, dealers said.

"There was light arbitrage selling around and then there were stops in the even-money area. Arbitrage selling kept the pressure on and there was no real buying around," one floor trader said.

Scale down manufacturer buying propped prices up somewhat, but selling pressure intensified as fund activity pushed the market ever lower in afternoon activities.

"Fund selling came in and pushed it down here late in the day. This morning, when we failed to get above unchanged, that attracted a little bit of profit taking from whatever specs (speculators) were bottom picking," one broker said.

Walter Spilka, softs analyst with Salomon Smith Barney said that fundamentals in the cocoa market remain bearish.

"If anything, it looks like the fundamentals may be getting more bearish - in that, it looks like production in Ivory Coast and Ghana may be larger than expected."

But Spilka said in his weekly Futures Research report, made available to Reuters on Tuesday, that although the downside would appear to be limited, "basis the May cocoa futures, a move under $750 looks possible".

"I think you might have another $20 or so on the downside," a New York-based broker said.

Volume remained thin in the New York cocoa market on Tuesday, which was closed Monday in observance of Presidents Day.

Final volume in cocoa on Tuesday was estimated at 4,545 contracts, compared to official turnover Friday of 3,648 contracts.

LIFFE cocoa ended slightly weaker on Tuesday as spread trading once again dominated the day's proceedings. Active May settled at 573 pounds a tonne, down one.

Traders pegged support in May at $775, whilst nearby resistance was seen at $823-25, then $834 and $848.-Reuters