Cocoa Prices Recover Despite Lower Grindings out of Europe
?? Fundamentals
After a nearly $350 decline in prices since recent highs were made back in September, Cocoa futures have rebounded sharply, as the highly anticipated 3rd quarter European Cocoa grindings report was not as bad as anticipated.
The European Cocoa Association reported on Tuesday that European Cocoa grindings fell by just over 16% in the 3rd quarter from year ago levels to 316,676 metric tons. Though the figures on the surface do not appear bullish for Cocoa prices, many in the trade were anticipating even more dismal grinding figures.The steep sell-off in prices during the past few weeks has set the stage for what appears to be a short-covering rally.
Though the European Union is the largest consumer of Cocoa and the sharp declines in demand cast a bearish tone to the Cocoa market, demand outside of Europe and the U.S. continues to grow.
Longer-term, it is expected that Cocoa production may fall short of demand in the 2012-13 season, with estimates from the International Cocoa Organization calling for a 100,000 metric ton deficit. If true, we may see a longer-term bottom forming in prices, especially if production problems emerge due to weather or political events in the West African growing regions.
?? Technical Notes
Looking at the daily chart for March Cocoa, we notice that prices have held just above the 200-day moving average (“MA”) after several attempts to move below this widely-watched technical indicator. The uptrend line drawn from the June 2012 lows is also being tested, and should recent lows actually hold, we could be in store for a sharp rally.
The 14-day RSI has started to turn up, with a current reading of 46.20. Support is seen at the 200-day MA, currently at 2356, with resistance found at the 20-day MA near the 2439 area.
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