US cocoa futures prices ended Wednesday with healthy gains as some funds bought in tandem with rising oil prices, which sent prices through key resistance levels that traders said spurred additional buying.
"I think the market responded technically in holding the triple lows at $2,555 (a tonne on July cocoa futures). And you saw some technical buying when you got over the 50-day moving average at $2,575," said one cocoa trader. He added that July cocoa closed last week at $2,577 a tonne and $2,597 was a pivot number on the charts, and more buying was triggered when both levels were surpassed.
"As you climbed above those technical indicators I think the market responded with more fund buying," the trader said. The benchmark ICE July cocoa contract settled $33 higher at $2,623 per tonne, near the session high at $2,626. The low was a key technical support level at $2,555 a tonne.
Cocoa futures continue trading electronically until 3:15 pm EDT (1915 GMT), and by 1:33 pm EDT, July cocoa rose $32 to $2,622 a tonne. The rest were up by $17 to $26 a tonne. Because some funds buy cocoa as a basket of commodities that nearly always include oil futures, traders said gains in crude oil also inspired cocoa purchases.
Oil rose above $130 a barrel on a technical bounce, rebounding from a sharp drop triggered by concerns about Asian demand. Traders noted that once again buyers stepped in to buy the dips. London cocoa futures finished higher on spread business and fund buying inspired by the rebound in oil prices.
Newly most-active September cocoa futures closed with 6 pound gains at 1,398 pounds. But traders there said the cocoa lacked enough outright buying to keep prices moving up. Cocoa farmers in west Ivory Coast said they had fallen behind with fertiliser and pesticide treatments, threatening to cut output and raise risk of disease in the 2008/09 main crop.
A Reuters reporter visiting the Daloa region, which produces around a quarter of the top grower's crop, saw damage from capsid bugs, which pierce cocoa leaves, and weeping holes in trunks from caterpillars, which also attack pods. But the damage was worse in older plantations. Brazilian 2008/09 (May/April) cocoa arrivals from Bahia and other states reached 163,585 60-kg bags last week, up 25 percent from 130,670 bags delivered in the same period a year ago, Bahia Commercial Association said.
Late on Tuesday, the International Cocoa Organisation (ICCO) said the global cocoa market should move into surplus in 2008/09 from a small deficit in 2007/08, because of some hesitation in demand at the same time as high prices have stimulated production.
ICE reported Tuesday's final volume at a modest 8,524 lots, similar to Friday's paltry showing of 8,466 cocoa lots. The exchange said Tuesday's open interest rose fell by 45 lots to 149,430 lots.
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