US cocoa futures settled sharply lower on Tuesday, losing 13 percent in two days, as funds continued to liquidate their huge long position following the market's spike to 16-month highs last week, sources said.
"The mass exodus continues. We've retraced back to where we were in early June, but I think there is more room to the downside," said one NYBOT floor dealer. The New York Board of Trade's benchmark cocoa contract for September settled down $61 at $1,497 per tonne, after dealing from a one-month low at $1,492 to its session peak at $1,515.
"Obviously, the charts look like hell, but we're now in a technical support area. The market is oversold you have had a sell-off of over $200 in a couple of days, so I don't think I would press the short-side down here," said one broker at a New York trading house, pegging first support at $1,485, and then down to $1,465.
After putting in its most recent bottom on June 14 at $1,486, NYBOT cocoa surged nearly 17 percent to $1,738 on July 11 - its loftiest level since March 2005.
Deferred or back month contracts ended with losses ranging from $56 to $59.
NYBOT floor traders estimated 32,588 contracts of cocoa futures traded hands on Tuesday, compared Monday's official count at 32,969 lots.
Fundamentally, expectations of a narrowing global supply deficit for the 2005/06 season combined with improving crop prospects for the 2006/07 harvest should hinder any significant moves higher, analysts said.
Meanwhile, good weather conditions have persisted into mid-July for the development of Ivory Coast's upcoming October-March cocoa main crop season, boding well for next season's October-March main crop, farmers said on Tuesday.
In London, benchmark September cocoa closed down 43 pounds, or 4.7 percent, at 864 pounds a tonne after dealing between 901 and 861 pounds. Total volume reached 34,568 lots.