Cocoa Prices Stabilize Ahead Of The 4th Quarter ?Grindings? Reports
Today’s Spotlight Market
Just as grain traders eagerly await the latest USDA crop reports, Cocoa traders are keenly interested in the Cocoa grinding report that is released quarterly. These reports, which measure the amounts of Cocoa processed in the U.S., Europe and Asia, help to measure the global demand for Chocolate and other Cocoa products. Estimates for the 4th quarter European Cocoa ?grind? are for an increase of just over 4%, which follows increases of 4.7% and 6 % respectively in the 2nd and 3rd quarters of 2013. North American Cocoa grindings are expected to have increased by 4.1% in the 4th quarter on increased demand for Chocolate for the holiday season. The National Confectioner?s Association will release the data at 4 pm ET on January 16th.?? ?
Fundamentals
Cocoa bulls are beginning to get nervous, as recent price action is putting the nearly 6-month long uptrend in jeopardy. Recent data on Cocoa arrivals to ports in Western African have been better that expected, which may be a signal that Cocoa production totals will be higher than current traders? estimates. Speculators were holding an aggressively bullish net-position in Cocoa for most of 2013, but recent price weakness and a failure to test the December 2013 highs has caused weak longs to begin to exit the market.
The most recent Commitment of Traders report shows non-commercial and non-reportable traders shed over 5,000 net-long positions for the week ending January 7th. This still leaves the net-long speculative position at a rather large 83,715 contracts, which could act as ?fuel? for further price weakness if protective sell-stops get triggered if chart support points fail to hold.
On the bullish front, 2013 saw global Cocoa demand improve, with higher Cocoa ?grinding? totals expected for the 4th quarter in both Europe and North America, although analysts believe that the grinding totals will fall short of the record set for the 3rd quarter of 2013. For the 2014-15 crop year, traders may turn towards the demand side of the Cocoa price equation, as the potential for demand increases from both developed and emerging nations could keep Cocoa futures prices from declining significantly in the coming months.??? ?
Technical Notes View? – Today’s Chart? Looking at the daily chart for March Cocoa, we notice that the uptrend line drawn from the late June lows have been taken out to the downside. Although prices are off recent lows, we note that trading volume has been light the past several sessions, and prices have had some difficulty, until Tuesday, trading above the 2720 price level. Some of this recent price consolidation might be due to position squaring ahead of the release of both the European and North American 4th quarter Cocoa ?grinding? figures to be released this week. Support for March Cocoa is seen at 2629, with resistance found at 2759.
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