Chocolate on Sale?
???? Fundamentals
Cocoa futures continue to slump, as improving fundamentals and outside factors weigh on prices. Cocoa port arrivals in the Ivory Coast, the world’s largest Cocoa producing nation, have started to increase, which is keeping the market well supplied in the near-term. Better than expected rainfall this past week is taking some of the weather “risk premium” out of Cocoa prices, as dry conditions earlier in the season raised concerns regarding the development of the main-crop.
Recent weakness in the value of the Euro, now tied to concerns that there was not a clear winner in the governmental elections in Italy, is also considered a factor weighing on Cocoa prices, as any spread of instability in the Eurozone may lessen demand for luxuries such as chocolate. European Cocoa demand is particularly important, as Europe is the largest consumer of chocolate per capita.
Not all the fundamental news is bearish, however, as Cocoa production out of Ghana is expected to be below expectations, and the coming end of the main-crop harvest should likely allow current Cocoa supplies to be absorbed — especially as “bargain” buyers begin to accumulate stockpiles at prices near 9-month lows.
???? Technical Notes
Looking at the daily chart for May Cocoa, we notice prices trading at lows not seen since June of last year. In the past, fresh buying seemed to have emerged once prices traded near the $2100 per ton level, and Tuesday’s test of this key support point was once again thwarted by bulls.
The 14-day RSI is weak, but has not yet reached oversold levels, with a current reading of 34.20. Last week’s low of 2102 looks to be support for May Cocoa, with resistance found at the 20-day moving average, currently near the 2175 price level.
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