NYBOT cocoa futures ended higher on Thursday as fund buying and speculative short-covering continued to drive prices to their highest levels in 3-1/2 months, although arbitrage and trade sales at the top of the range trimmed the rally, floor sources said.
"Most of the action was fund short-covering. All of these funds that sold it down in the low $1,300s, all the way up to $1,400 are now bailing out," said one.
"The trader were good scale-up sellers once we got up to around the $1,539 level," he added.
Benchmark September cocoa jumped $38 to finish at $1,531 a tonne, just off the high end of its $1,493 to $1,539 tonne range.
This was the best settlement since March 31, 2004, when the contract ended at $1,537. In its last day of trading, July cocoa closed up $43 at $1,541. July cocoa expired after the close of trade Thursday. The rest of the board settled $40 to $42 firmer.
"The consolidation at the higher end of the range on Monday and Tuesday was in really light volume. So the fact that we have broken out yesterday and today to the upside in good volume is more confirmation that the technical aspect of the market is pointing to high levels," said one softs analyst.
Fundamentally, some market operators were concerned with farmer prices in Ivory Coast, which have been averaging half of what they were they year before, could start to hinder production for next year.
"The drop in the farmer price this year from the year before wont encourage any production gains in Ivory Coast next year," said one.
Late Wednesday, Ivory Coasts marketing body set its indicative minimum cocoa farm gate price at 365 CFA francs ($0.69) per kg for the period from July to September, down 10 CFA francs from the previous three months.
Buyers and exporters told Reuters they were angry that the price bore no relation to the much lower sums paid to farmers in the bush.
Ivory Coast introduced a minimum price for cocoa during the 2001/02 season under pressure from farmers who were unhappy that a state-run stabilisation system had been terminated.
Meanwhile, the cocoa market will pay close attention to US cocoa grind results for the second quarter 2004 ahead of the data which is due shortly.
Industry sources said that the US Q2 cocoa grind results should rise only 1 to 3 percent and that the data will not likely be a dynamic driving force for the market.
Floor sources said final estimated cocoa futures volume Thursday stood at 11,458 lots, against 11,504 lots on Wednesday. Open interest in the cocoa market rose 572 to 101,058 lots as of July 14.
Support in September cocoa was seen at $1,400, $1,360 and then at the contract low of $1,298, while resistance was placed at $1,565 a tonne.