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The Ivory Coast mid-crop production has yet to begin and the main crop season is basically done so in the interim, there is a tendency for technical action to carry a bit more weight. Weather appears favorable for the mid-crop production at this point. In Indonesia, the government put a tax of 10% on cocoa exports in an attempt to support the local grind but exporters are a bit panicked and are trying to renegotiate deals made before the tax was implemented. May cocoa pushed lower yesterday, but remained well above its recent lows as a lack of fresh news helped to squelch positive momentum from last week’s rally. With London markets closed for the holiday, and with the British Pound essentially unchanged from Thursday’s close, the cocoa market could not benefit from any carryover strength coming from other commodity markets. This was disappointing action for the bulls. A wave of profit-taking liquidation was punctuated late in the session by a sharp spike down to the day’s lows near the close. The trade will be looking for verification of stronger demand in the 1st Quarter European cocoa grind figure which is due out later this month. The Commitments of Traders reports (as of March 30th) did not show much in the way of changes in positions for key players but non-commercial traders (funds) still held a net long position of 22,442 contracts. ICE Cocoa warehouse stocks were up 58,145 bags to 4.776 million.
TODAY’S GUIDANCE: The bullish longer-term factors for the market include the outlook for improving global demand and the possibility of production problems for African producers. However, these longer-term forces can only have so much pull on the market direction. Therefore, with the short-term buying slow from end users and the market a bit technically overbought, another test of support may be in order.
TODAY’S MARKET IDEAS: July cocoa resistance comes in at $3013 and $3056 with $2948 and $2915 as support. Watch for a test of both support levels soon.
