Cocoa Grinds Data Halts Rally
Today’s Spotlight Market
Large speculators have started to slowly lighten-up on their net-long positions in Cocoa, with the most recent Commitment of Traders reports showing non-commercial traders shedding 365 net-long positions during the reporting period ending July 8th. This still leaves a rather lofty 71,788 net-long contracts, which could be a catalyst for a rather meaningful price correction should recent support near 3040 basis the September futures fail to hold. ?
Fundamentals
Cocoa has been the only so called ?softs? commodity that is in a bullish trend of late, but there are now some signs that commodity bears may be starting to indulge in their chocolate cravings. A report on European Cocoa grindings was viewed as ?disappointing? by analysts as grindings fell by 0.7% in the second quarter. This may be a sign that demand for Cocoa products, especially Cocoa Butter, might be starting to wane. The market is already well supplied with Cocoa Power, so any slippage in demand for Cocoa Butter could further curtail European grinding in the third quarter. On the supply side, Nigeria is expected to see a nearly 10% rise in Cocoa production for the 2014-15 season as a government program to increase Cocoa production by subsiding the cost of fertilizer and insecticides for producers. Traders continue to keep their focus on production out of the Ivory Coast, the world?s largest Cocoa producing nation. Recent rains might be slowing Cocoa arrivals for the mid-crop, but adequate moisture levels should aid production for next season main crop, with some analysts looking for a potential record crop in 2014-15. If true, we would need to see Cocoa demand continue at its current strong pace, especially out of Asia, going into 2015 in order to support prices at current rather lofty levels.?????? ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for September Cocoa, we notice what appears to be a rounded-top formation as prices seem to have lost some of the upside momentum the past few weeks as prices have consolidated just below recent highs. Trading volume has declined and the 14-day RSI is beginning to from a bearish divergence. We find support at the June 25th low of 3040, with resistance at the recent high of 3149.
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