Speculators Are Still ?Cuckoo? For Cocoa Futures
Today’s Spotlight Market
Large speculators have been adding to their already large net-long position in Cocoa futures the past week, while small specs were lightening up on their long positions as prices traded near 3 year highs. The most recent Commitment of Traders report shows non-commercial traders, which are normally large commodity funds and traders, added nearly 2,500 new long positions for the reporting period ending June 10th. This put the net-long position at over 71,000 contracts. Both commercial and non-reportable traders were net-sellers of Cocoa last week, with the commercial position rising to a net-short 78,615 contracts as of June 10th.
Fundamentals
Cocoa futures remain firmly in the bull camp as prices remain near highs not seen in nearly three years, despite early signs of improving crop prospects. Mid-crop Cocoa arrivals at ports out of the Ivory Coast are running above last season?s totals, which could see analysts potentially raising their estimates for the 2013-14 crop. This increase in production is sorely needed given the current robust demand outlook, especially out of Asia. Ample rains have been falling in the West African Cocoa growing region of late, which is seen as good news for the development of the main 2014-15 crop, which is currently in its early development stage. However, it appears that market participants, especially speculative accounts,? fear the potential of an El Nino weather event later this year, which historically has led to lower Cocoa production due to lack of rainfall. Any supply declines could cause prices to rise even further to help curtail demand and prevent the Cocoa market from falling into a large deficit in the 2014-15 marketing season.
Technical Notes? -? View Today’s Chart
Looking at the daily chart for September Cocoa, we notice prices grinding higher after several sessions of increased price volatility as the market tests the $3100 per ton price level. Although prices are currently at their highest levels since August 2011, we notice the 14-day RSI forming a bearish divergence with actual readings near 50 despite Cocoa trading near contract highs. This could be signaling that the market is setting up for a near-term price correction, especially if recent price gains turns out to be just short-covering buying and not fresh long positions being established. 3150 looks to be near-term resistance for September Cocoa, with support found at 3050.
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