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CSCE cocoa rallies to close near highs, specs buy

NEW YORK: CSCE cocoa futures settled just off the day's high on Monday, when speculative selling triggered stops, taking the market to its highest level since last Tuesday's sell-off, traders and brokers said.

Benchmark March cocoa settled $18 higher at $783 a tonne, trading between $785-761. Second position May climbed $16 to $814, whilst back months rose $13 to $16.

Morning activities saw spot March pushed down to intraday lows on arbitrage selling, with the bulk of transactions revolving around spread activity, traders said.

"It's going through this liquidation of March and I believe that what's going to happen is that after that process is over, you could see a rally in the market," one trader said.

Spot March will enter its notice period on February 15.

Light scale down trade buying initially supported the market, but prices then rallied to the market close as new speculative buying in May and July triggered stops, floor traders said.

But U.S. analysts said that fundamentally, cocoa remained bearish, with larger West African crops and arrivals running ahead of last year's levels.

"We see production increasing relative to consumption. That should result in higher cocoa stocks. Basis the March cocoa futures, a move toward $750 is likely," Salomon Smith Barney's softs analyst Walter Spilka said in a weekly futures report.

Arthur Stevenson, softs analyst with Prudential Securities said that "unless there is a new bullish development (such as an effective Ivory Coast farmer withholding action), there is little reason to expect a dramatic price turnaround".

Stevenson added that he was sceptical that a purely privately run price stabilisation scheme in Ivory Coast would be taken seriously by the world market.

Ivory Coast exporters last week rejected a privately-run system of selling forward cocoa and coffee through a local cocoa bourse.

Traders in New York have also voiced doubts over such projects. "Forget about it. It will never happen. The only way they can organise forward sales is when you have a fixed price guarantee and if the government's not in a position to fix the price, then nobody else will be able to do it," one senior trader said.

In industry news, leading Ivorian shipper SIFCA said Monday that it planned to focus on its core activities and would be "integrating strongly" with U.S. commodity giant Archer Daniels Midlands ADM.N.

Talks between ADM and SIFCA, which already holds a 30 percent stake in SIFCA, are to start next week, according to SIFCA's chief executive officer, Yves Lamblin.

In London, LIFFE's March cocoa ended five pounds up at 540 pounds a tonne, getting a late short-covering boost from the rally in New York.

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

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

Volume traded Monday reached an estimated 14,132 lots against the previous official volume of 9,342 lots.

The nine-day relative strength index (RSI) of March cocoa departed from oversold territory after Monday's rally to stand at 43 at the close, compared to 24 on Friday.

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