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CSCE cocoa makes inroads to firm close, trade buys

NEW YORK: CSCE cocoa futures crept away from the downside to end on a firm note amid moderate trade buying interest coming in on the day's lows.

"The ring initially sold it. It was a quiet day with trade buying near the close keeping the market steady," commented one floor trader.

But traders and analysts are still calling for further price deterioration as forecasts of higher crops from Ghana and the Ivory Coast continue to weigh down the market.

"The trend has been lower and it's been lower since the beginning of the cocoa year which was October 1," said Walter Spilka, softs analyst at Salomon Smith Barney.

"The reason has been that we all knew it was going to be a bearish season in cocoa simply because world production is larger than world consumption this year."

Active May firmed $13 to $778 a tonne, narrowly missing new lows as it traded between $783 and $758. Spot March CCH0 cocoa gained the same to close at $753 with $13 gains registered across the board.

Volume was estimated at 5,422 lots with option calls totalling 2,080 and puts estimated at 486.

"We've seen this during the last couple of sessions where the trade comes in to prop it up near the close," said a NY trader. "Getting above yesterday's high, it looked like there was a little bit of short covering by commission houses."

Stops were touched off at the $780 region for the May contract with volumes called moderate, according to floor traders.

"Since mid-January, we started to move down again due to the fact that the West African crops, particularly the Ivory Coast and Ghana, are likely to turn out to be larger than expected," said Spilka.

The Ivory Coast crop is estimated to reach a record 1.3 million tonnes while Ghana may not set a record but will still reach larger than anticipated levels, according to Spilka.

"The market is discounting that in the form of lower prices. May cocoa could trade $50 to $60 lower over time but at some point it will bottom out," he said.

Bean prices drifted lower in early trading when ring dealers initially took selling positions. Once the market flirted with new lows, trade buying came in which was doubly supported by a short covering rally in London trading.

Liffe cocoa ended at intra-day highs amid a mix of late short-covering and switch trading ahead of March's first notice day on Wednesday.

Against Actuals (AAs) took up a significant part of the day's volume which totalled 20,000 lots. Active May gained 18 pounds to 576 pounds a tonne, whilst March was 12 pounds higher to 520 pounds.

Traders pegged support in CSCE May at $753, followed by $750, whilst nearby resistance was seen at $785/786, and up to $800.

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