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CSCE cocoa futures see technical melt down

NEW YORK: CSCE cocoa futures prices took another blow on Friday in a largely chart-driven breakdown, which saw speculative funds return to the market to further liquidate their long position.

Active May retreated by just over four percent on the day, to close $36 lower at $840 a tonne. It hit an intraday nadir of $828, a 62 percent retracement from its March 16 high of $947.

Arthur Stevenson, softs market analyst with Prudential Securities, told Reuters that this latest setback in cocoa futures prices was chart driven.

"The price advance which we saw earlier in the month was largely technically driven and for the last four or five sessions we've simply seen a drying up of this buying," he said.

"We saw a lot of sell-stops being hit, which accelerated the market's decline."

CSCE cocoa futures last week raced up to their highest level since November 30 when active May touched a $947-high.

Stevenson noted that arrivals of cocoa beans to ports in the world's largest cocoa producer, Ivory Coast, continued to tail off as the main crop season draws to a close.

"We're still getting new arrivals figures. But I feel that at this stage they have very little meaning."

Weekly arrivals were estimated at 16,000 tonnes in the week to March 19, taking cumulative 1999/2000 arrivals to 1,078,000 tonnes, according to exporters and other industry sources.

Brisk arrivals in Ivory Coast and upbeat purchases in Ghana at end-February saw U.S. cocoa prices spiraling down to 27-year lows, when the benchmark second-month hit $756.

"I wouldn't be surprised at all if we were to see a testing of the recent lows...which would push us down to the $760 level (basis May)," Stevenson said.

Traders and brokers said that a combined net long speculative position in the cocoa market was also adding to negative sentiment.

Large investment funds, or non-commercials, were shown to be holding a very small net long position of 794 lots as of March 21, compared to 7,101 net short in the previous bi-weekly CFTC Commitments of Traders report.

However, smaller speculators are still net long by 17,982 lots, giving a combined net long speculative position of 18,776 lots, up from 12,704 lots on March 7.

One senior New York-based cocoa trader told Reuters only one week ago that the rapid climb in prices was purely due to technical short-covering. "Once that stops you will see a vacuum in prices and we will be back to $800."

The dismantlement of the old state-run Caistab price stabilisation system in Ivory Coast, which allowed the government to sell around 70 percent of the crop forward, and its replacement by spot selling was a significant negative factor in the cocoa market, Stevenson said.

"The effective ending of the Ivory Coast as a forward market and it becoming a spot market, I think, was the most significant long-range bearish factor and that has really not changed at all."

Friday, the Collective of Ivory Coast Cocoa Producers said they will hold a general assembly on Tuesday to discuss the re-introduction of centralized cocoa forward sales.

Exporters, analysts and traders contacted by Reuters have repeatedly voiced their doubt and scepticism about the viability of any such scheme.

Many operators have especially questioned the finance aspect of any such plan.

"To restore some form of forward selling, there has to be money made available for that. It would probably have to come from foreign financing," he said.

"You would also require the acquiescence of the World Bank and other monetary institutions to agree to some new form of state intervention. Unless all these elements are in place, I just do not see the return to some sort of forward sales structure."-Reuters