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CSCE cocoa hammered again as specs bail out

NEW YORK: New York cocoa futures plunged again Monday, almost eliminating last week's technical rally, as fund liquidation extended a harrowing shakeout from Thursday's spike to three-month highs, dealers said.

"It's really just dramatic falls for two days," said Refco Inc. softs analyst Ann Prendergast. "I dont see how the market is going to recoup from that because there is nothing that bullish on the horizon."

After a weak cocoa open, a computer glitch halted morning futures trade for about 30 minutes on the Coffee, Sugar and Cocoa Exchange. But once business resumed prices skidded.

Active May settled at $857 a tonne, $41 lower. It lost 4.6 percent on the day, after falling almost four percent Friday, and moved in a range between $891 and $851.

Dealers said the cocoa industry was largely sidelined in the abrupt two-day bailout since May topped at $947 a tonne on Thursday, its highest since the Nov 29 high of $953.

"It's all spec liquidation," observed one trader. "They got long above the market and I think they have a lot more to go.

"The producers are just above the market here but everyone knows they are there," he continued. "So the trade is not going to buy the market, because they can buy cocoa from Ghana and cocoa from Indonesia so they are not going to take the paper away from the specs."

Second month July cocoa closed at $885, losing $38, trading $920-$879. The back months all shed $38 a tonne.

Traders said cocoa losses could deepen and that there was no fundamental justification for the recent rally in a market burdened by surplus supply and predictions of a bigger crop next year.

LIFFE cocoa was also hammered, with May finishing 20 pounds a tonne weaker at 633 pounds. Active July was 18 weaker at 642 pounds.

Market experts said key support for LIFFE's May contract was at 621 pounds a tonne, followed by a large gap before the next prop around 605-608. May cocoa was expected to open 15 pounds lower, the trader said.

In New York, pivotal support for the May contract is at $839/$840 a tonne.

"If it goes through there, I would say both New York and London have another $100 to retreat back to support," Prendergast said, noting that the pound's current exchange rate near $1.57 made arbitrage selling attractive.

In industry news just before New York's close, Ivory Coast's Agriculture Minister Luc Koffi said that the world's top cocoa producer had banned exports of cocoa beans smaller than 100 beans per 100 grammes.

"Through this policy, Ivory Coast aims to eliminate the marketing of the mid-crop cocoa," he said. "This measure is a response to the situation of the international market, on which cocoa prices remain very low."

Volume traded on the CSCE Friday was estimated at 10,574lots, compared to Friday's official tally of 15,089 lots.

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