Cocoa for a long time has been relatively cheap. But the the settlement of revolutionary strife in the Ivory Coast and elsewhere in Western Africa, marketing of cocoa has become more stable and disciplined. There is a great arrousal of concern about child slave labor being used to produce cocoa in Africa. International committees involved with the situation suggest a boycott of cocoa and chocolate products for that reason. Exactly how this would help the slave labor situation is unclear, but presumably companies like Nestle would be forced to become more socially responsible. How they would do that in purchasing cocoa on the open market is unclear. Meanwhile, cocoa crops are threatened from a variety of things such as neglect, disease, abandonment, and net world production after so many years of low prices is down. The market seems to be in a self-correcting mode, as the price of cocoa rises well above the cost of production to historic highs once again. The boycott does not seem to be working and all the cheap labor used to produce cocoa seems inadequate to drive prices lower on world markets. Speculators have driven futures well above cash prices, and the presumption is that shortages will get worse.
March Cocoa:
01-26-2008: March Cocoa: Weather, Disease, and Neglect
Introduction
Parabolic Chart
March Cocoa:
A weak U.S. Dollar and economic optimism are credited with pushing cocoa prices higher. The demand for cocoa improves with calming fears about the economy. European banks seemed determined to hold interest rates steady while the Fed continues to ease improving NY cocoa's investment appeal. There are dwindling Ivory Coast supplies as the harvest winds down. A lack of producer hedging exists, allowing speculative buyers to encounter less resistance. Ivory Coast arrivals as of January 20th are running 8% above last season. Buyers are actively looking for supplies and finding it difficult to fulfill needs. Nigeria's main cocoa harvest trailed off and Cameroon reports cocoa bean exports through December were down 20% compared to a year earlier. This leaves the impression cocoa supplies are tight. NY daily certified cocoa warehouse stocks are at 3.1 million bags. Political infighting between government agencies in the Ivory Coast, as well as among the Cocoa Marketing Body and industry workers are acting to slow cocoa trade. On March 4, 2007, the Ivory Coast government and rebel forces agreed to form a new government. If national elections are held within a year from then as promised, that would make a major improvement for the cocoa industry and marketing. A threat to the world's cocoa crop comes from dry weather conditions and swollen shoot virus. The virus is not being contained and cocoa plantations are being abandoned. Recent low prices made it hard for producers to afford sprays and fertilizers that might have helped. The Ivory Coast and Ghana account for one-half the world's cocoa production. The International Cocoa Organization projects that ending stocks of world cocoa will be down to 1.60 million tons from the previous year's 1.84 million tons, and represents 44% of annual use. The ICCO expects a return of world production surplus of 3.78 million tons of production. The U.S. cocoa grind in the third quarter of 2007 was down 14% from a year earlier. Recently, sideways cocoa prices regained footing to hold above $2,100 level basis March, causing speculators to move in with technically-driven buying. Analysts are projecting persisent strength in the market into late winter and spring. Nigeria's key southwestern cocoa belt has not had any rainfall since the beginning of January, and the 2007-2008 crop may be damaged by drought. Nigeria usually produces 50 to 55 thousand tons of cocoa at the midcrop per year with beans harvested between April and August. Prices of graded cocoa have fallen recently in the cash market to around $1,984 to $2,2028 per metric tonne. Some U.S. marketers think food prices have risen so far as to cause a peak in coffee, cocoa, and sugar prices. Cameroon's output is expected to rise 3% from last year's harvest of 179 thousand tonnes.
24.0I T 1/24
I CSCE- Mar-08 Cocoa, 10 metric ton $100/ton Cm.=0.03 Lim.= 0.8
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1111 1111 11111
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical high and a seasonal up period.
Our best-performing internal program is "Trader." It is giving a buy signal.
Results of "Trader" for Cocoa (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has just triggered a buy signal. (Note, disregard the year date on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $10 if no decimal. Initial margin on a single contract is $1,260. Use of options is not advised.
Scale trade sellers are moving in for the long term in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Red is small speculators. Green is large speculators. Blue is commercials. Large speculators with the best track record are remaining long.
The average volatility shown below suggests that a major change in direction to down is imminent at a volatility low point.
Our option trade recommendation is to Sell the Cocoa May 2100 Put @ 695 or better. This was based on somewhat faulty (stale) exchange-provided data, so readers may wish to re-evaluate this trade in the light of current floor bid/asks.
Here's an intraday chart for the previous day ( 1/24 ).
Risk Versus Opportunity Report
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CCH8 March Cocoa
High Price: 2388
Current Price: 2192
Low Price: 2096
Risk: 0.086
Opportunity: 0.175
(O/R) Ratio = 2.042
Level Table:
| Factors | Weighted Points |
|---|---|
| Parabolic Chart | - 1 |
| Nirvana Chart | - 1 |
| News | + 1 |
| Point & Figure | + 1 |
| Cyclicals | + 1 |
| Seasonals | + 1 |
| Internal System 1 | + 1 |
| Internal System 2 | 0 |
| Third System | - 1 |
| Commitment of Traders | + 1 |
| Historic Range | - 1 |
| Range/Volatility | - 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | + 3 |
Place 11 March Cocoa on a Buy Watch with stoploss @ -95 below the get-in point, when the price is represented with no decimal.________________________________________________________________________________________________________H.C.
