London cocoa futures prices risk further falls from recent 6-month lows on expectations of a big West African crop, but worries over the wider subprime credit crisis and black pod disease in Ivory Coast muddied the outlook.
Dealers said the price outlook appeared bearish near-term, primarily due to big supplies expected from leading producers Ivory Coast and Ghana, which have had ample rainfall before harvesting of the 2007/08 main crop due to start around October. But reports of black pod disease would be bullish if confirmed on a large scale.
Worries in the wider financial markets over subprime credit had caused funds to reduce risk and sell cocoa, dealers added. Jonathan Parkman, London-based head of the agri-commodity brokerage at Fortis Commodity Derivatives, said the subprime crisis had had a greater impact on cocoa futures in recent weeks than the fundamental supply/demand picture. "It (subprime) is the principal reason the market is lower," he said.
Funds had held substantial long positions in both New York and London cocoa markets and liquidated positions in line with the risk-averse psychology in the markets, dealers said.
However, some fund managers feel that soft commodities hit by the credit crisis, such as cocoa and sugar, could soon attract inflows. Dealers said the picture from Ivory Coast, the world's top grower, appeared bearish due to the expectations of an abundant crop, but worries over black pod disease could underpin prices.
US cocoa futures closed up but below 2-week highs on Wednesday on speculative and industry buying sparked by a bullish crop report on Ivory Coast by independent analyst Hans Kilian. The report also triggered buying in London.
Dealers said the Kilian report pinpointed a serious outbreak of black pod in the key south-west of Ivory Coast. It is too soon to say how much of an impact the reports of black pod will have on the Ivorian crop, in part because farmers will try to combat it, said New York-based Judy Ganes-Chase of J Ganes Consulting.
Outbreaks of black pod disease in parts of Ivory Coast's main cocoa growing zones are likely to trim 2007/2008 main crop output but production is still expected to be high, farmers and buyers said on Wednesday.
Comments
Comments are closed.