With a weak US dollar and positive action from outside market forces, the bounce yesterday is not too impressive and the market may see choppy to higher trade over the short term to correct the oversold condition before a resumption of the downtrend. September cocoa prices ended slightly higher but well off of the day’s peak on Monday after a failed attempt to trade above resistance at $3020. Cocoa continues to consolidate last week’s dismal price action. Excess rain and moisture has made the process of properly drying the beans increasingly difficult in the Ivory Coast and at the same time has lowered the overall quality of the mid-crop, but the outlook for the main crop in October is improving. Some cash traders said they have had to turn away most (up to 80% on some accounts) of the cocoa beans offered due to insufficient quality. Quality issues have restrained supplies and increased the year over year supply deficit. Total Ivory Coast arrivals stand at 1.082 million metric tonnes since the season began last October and are about 1.9% under year ago levels. Ivory Coast production is on pace for its lowest levels since the 2004/05 season, exacerbated by excessive rainfall and years of under investment. However, reports of prolonged periods of sunshine may have helped cocoa pod development. Still, weather forecasts for lower temperatures could slow the start of the main crop in October, which in turn would further damage buds, weigh on quality and reduce production. Indonesia crop conditions appear to be improving with decent weather recently. Technically, September cocoa is trying to trend higher helped by a “higher” high and low on Monday. However, the intermediate trend is down for cocoa and would require, at least, a short term move back above $3020 to flip the sentiment positive. In the event prices are able to turn higher, there is a retracement target above at $3060. In the meantime, we would like to see if the current attempt at higher prices has any legs before getting overly aggressive on the short side of the cocoa market.

TODAY’S GUIDANCE: Resistance for September cocoa comes in at $3020 and $3056. Keep $2806 as the next target.

This content originated from - The Hightower Report.

Our longer term viewpoint is bearish for cocoa, but tightness in New York and London are supportive near-term. Exchange stocks continue to decline, which should keep bears cautious. London is trading at a stiff premium to New York, and nearby London contracts are trading at a premium to the deferred contracts. The large number of contracts still open on the soon-to-expire London July futures is also sparking concerns that as much as four-fifths of the exchange stocks could be used up in the delivery process, leaving precious little for the September delivery. On top of that, heavy rains in the Ivory Coast are raising concerns over disease problems. Supplies tend to be tight this time of year, ahead of the main crop arrivals which begin in October, and there seems to be a concern over the chance for some extreme tightness this year. September cocoa came under mild pressure yesterday but remained well entrenched within its recent trading range. A late sell-off in the British Pound weighed on the cocoa market, and the ongoing delivery situation with the London contract appeared to have little impact on NY prices yesterday. Cumulative port arrivals in the Ivory Coast for this season continue to gain ground, but they still remain close to 1% behind last season’s levels. Heavy rains continue to have a negative impact on this season’s cocoa crop in the Ivory Coast, due to transportation issues and the potential for disease outbreaks. ICE exchange warehouse stocks were down 30,187 bags to 4.073 million. A selling trend from fund traders and speculators as indicated in the recent COT reports could be seen as a short-term bearish force. It may not take much in the way of positive action in London to spark a significant run higher in New York.

TODAY’S GUIDANCE: With a potentially volatile situation developing in London, the NY futures could be taking their cues from that market over the near term. The US stock market was higher in overnight futures trade, and if it continues to gain ground today, it in could also lend support. If the market breaks out of the recent consolidation with a move above $3028, it would be considered supportive. Look for support at $2974 and consider $3084 and $3227 as upside objectives if $3028 is taken out.

This content originated from - The Hightower Report.

The near complete lack of resting buy orders under the market sparked a collapse in prices yesterday and this could be a good indication that the market is just too overvalued. Recent higher prices have been supported by the idea that world demand growth would be significant this year. However, a return to the debt problems in Europe and a weaker world economic outlook helped to pressure the market yesterday as it managed to collapse $147 in just one minute as stops were activated and there were no new buyers. September cocoa came under heavy pressure yesterday highlighted by this collapse. While a sell-off in the British Pound added to the negative tone, pressure for most commodity markets due to a flare-up of risk aversion out of the Euro Zone added to the severity of the sell-off. Continued tight supplies and relatively high price levels in the Ivory Coast may encourage further smuggling of cocoa beans across the border from next-door Ghana. The wet weather in the Ivory Coast is likely not enough to provide continued support to the market unless rains continue well into July. Heavy rains are causing concern for this season’s mid-crop in West African production areas. Producers indicate that after three weeks of rains, the crop needs periods of good sunshine in order to promote flowers and small pods and in order to avoid disease. A few days of sunshine should help promote a better mid-crop outlook. ICE cocoa Warehouse stocks were down 15,017 bags to 4.183 million bags.

TODAY’S GUIDANCE: The market lacks the commercial support to push higher and specs hold a hefty net long position and are vulnerable to long liquidation selling.

TODAY’S MARKET IDEAS: Selling resistance for September cocoa should emerge near $3008 and $3030 with $2822 as an initial downside target.

This content originated from - The Hightower Report.

A strong pound against the US dollar may have sparked some short-covering which fed on itself to release some aggressive buying and short-covering for the cocoa market. Some talk of the small world production deficit for the 2009/10 season and the resulting tightness in supply helped to support but the rally did not seem to come from tightness in the cash market or from commercial demand. September cocoa made a sharp rally out of its recent trading range, finishing the session yesterday with heavy gains and at its highest close since June 4th. A major turnaround in the British Pound added to the market’s near-term strength. While arrivals in the Ivory Coast have made a late-season surge, season totals are still running over 1% behind last year’s levels. While there is some talk of potential wetness issues with the Ivory Coast crop due to too much rain, the rains would suggest a bearish supply outlook for the main crop for harvest in the 4th quarter. Indonesia lowered their base export price and the country plans to hold the bean 10% export tax in place for July. Early estimates for the upcoming season’s production from the Ivory Coast call for this year’s crop to exceed last year by at least 1.5% and weekly arrivals picked up to near 18,000 tonnes this week from near 7,000 tonnes for the same week last year. ICE warehouse exchange stocks were down 18,246 bags yesterday to 4.215 million bags.

TODAY’S GUIDANCE: The market took out last week’s lows early yesterday but could not generate new selling interest and the strong short-covering bounce caused the market to close over the 100-day moving average for the first time since May 6th. The technical action is impressive but the market does not seem to have the longer-term fundamentals to see much follow-through to the upside.

TODAY’S MARKET IDEAS: Key resistance for September cocoa comes in at $3084 and it will take a close above this level to turn the charts decisively bullish. Support is at $3028 and $2973.

This content originated from - The Hightower Report.

The market seems vulnerable to follow-through technical selling as this is the time of the year when there is less supply news than normal and technical factors have a tendency to move the market. Demand news is important in this period between the main crop and the mid crop in the Ivory Coast and demand is in question with the economic set-up in Europe. If the bearish forces of the debt situation in Europe re-surface as a driving force for financial markets, demand will be in question. After grinding their way up to new highs early yesterday, July cocoa prices fell apart late in the session and finished the day with a sizable loss as they posted both the weekly high and weekly low during the session. With little fresh news from the fundamental side of the market, cocoa found its main support from a strong performance by the British Pound, which reached its highest levels since last week off of the general move away from risk aversion in financial markets. Cocoa arrivals in Brazil were running over 6% behind last year’s levels, although it is still early in their production season. Cocoa bean imports to the US in April were just 43.5 million pounds from 141.8 million in March. If the weather stays favorable for the Ivory Coast, the mid-crop production is likely to exceed last year and this, combined with expectations for expanding production in Indonesia, Brazil and even Vietnam should help counter ideas that longer-term supply will not be able to keep up with longer-term demand. ICE Cocoa warehouse stocks were down 23,346 bags to 4.429 million bags.

TODAY’S GUIDANCE: Supply tightness should become less of an issue for the second half of the year and the market seems to be trading off of demand prospects which have shifted from quite positive in early May to highly questionable today. It will take a significant shift in the demand situation to see much follow-through higher on rallies. Demand concerns could re-surface on any further financial difficulties in Europe.

TODAY’S MARKET IDEAS: Short-term resistance for September cocoa is at $2993 and $3028 with support at the $2943 and $2908. A move under $2908 could spark a resumption of the downtrend and another leg down.

This content originated from - The Hightower Report.

A weak US dollar and continued talk of London futures trading near 32-year highs helped to support the market overnight but traders should be watching out for a near-term top “if” the outside market forces turn a bit more negative. We remain concerned that the financial markets could spark another round of long liquidation selling from speculators in commodities soon and that European demand issues will re-surface as a negative force. July cocoa continued to make new highs for this rally, but failed to hold onto early gains yesterday and headed back towards unchanged levels. Brazilian arrivals for the 2009/10 season were down over 6% from last year’s levels. Heavy rains in the Ivory Coast have contributed to tight cocoa supplies from that nation but the rains should be beneficial for the main crop later this year. The rains are also beneficial to late developing mid-crop but there are some concerns over fungus issues and issues about getting cocoa to markets during a period of too much rain which slows transportation. The main crop harvest in Indonesia is also picking up steam but there is also talk of some quality issues due to too much rain in recent weeks. A sell-off in the British Pound helped to limit the upside yesterday but outside market forces turned more positive last this week as traders suspect good economic news in the US on employment could be a good sign for the global economy and the outlook for demand. ICE warehouse stocks were down 12,313 bags to 4.438 million bags.

TODAY’S GUIDANCE: There is tightness in near-term supply but the market also faces very high prices for beans and products and demand expectations may be set a bit too high. Discretionary spending may come in below expectations; especially in Europe.

TODAY’S MARKET IDEAS: Unless there is more to the supply concerns supporting the current bounce, the market appears set to trade in a range over the near-term after recent steep uptrend and downtrend spurts. Resistance is at $3084 with support back at $2973. It will take a close over $3158 to turn the pattern more bullish. The bulls are counting on strong cocoa demand and also strong demand for commodity markets in general.

This content originated from - The Hightower Report.

With a turn for the worse in outside markets and increasing European demand concerns, cocoa appears poised for a resumption of the downtrend. July cocoa was able to bounce back from early weakness yesterday and rally to reach its highest price level since May 13th. A recovery in the British Pound helped to support the market, and prices were able to overcome the negative sentiment of a stronger Dollar on physical commodities. The sharp break in the British pound overnight looks to be a significant negative force for the market to deal with today. Beneficial rains in the Ivory Coast may have gone some way to improving this season’s production totals and some traders are hopeful that mid-crop production will pick up in the months just ahead. However, port arrivals there are still running over 3% behind last season’s pace. Arrivals through May 16th have reached 945,378 tonnes which is down from 982,154 tonnes the previous year. The market is in the process of recovery from the oversold condition of mid-May and there seems to be enough demand concerns out of Europe to cause increased long liquidation selling over the short-term. The COT reports as of May 18th showed fund traders (Non-Commercial) were net long 25,126 contracts, a decrease of 7,562 contracts for the week and the long liquidation trend from speculators is seen as a short-term negative force. ICE warehouse stocks were down 12,670 bags to 4.515 million bags.

TODAY’S GUIDANCE: Trend-following fund traders (hedge funds) reduced their net long position by a whopping 6,837 contracts for the week ending May 18th and held a net long of 14,134 contracts on that date. The long liquidation selling trend is bearish and suggests that if outside markets stay weak, cocoa seems to be a good candidate to see more selling pressures ahead. Resistance for September Cocoa comes in at $2973 with $2866 and $2849 as support. Keep $2623 as a longer-term downside target.

This content originated from - The Hightower Report.

While the market will deal with some mid-crop production from the Ivory Coast in the next few months, most of the supply fundamental news does not emerge again until the fall harvest of the main crop. If there is no significant off-season weather issue, demand will be the key issue in the months just ahead. European demand is the big concern at present and fears that the debt issues will hold down spending on chocolate could be the primary reason we saw a collapse in prices this week. After finding a measure of support earlier in the week, July cocoa came under heavy pressure yesterday and finished the day with sharp losses. The revival of risk aversion in outside markets kept the cocoa market on the defensive, and weakness in the British Pound due to a lack of resolution to forming a new UK government did not help matters. News that cocoa purchases in Ghana are still running over 10% behind last season’s levels provided little in the way of support, as supplies have been tight in West Africa for some time now. Strong grindings levels for Europe this year so far may head lower if continued problems with EU sovereign debt cause business sentiment there to go down. At this point, July cocoa has returned to the trading range it saw during late February to early April. This has occurred without the supply/demand fundamentals undergoing any sort of profound change. ICE warehouse cocoa stocks were down 13,403 bags to 4.685 million.

TODAY’S GUIDANCE: It will be important for the market to respect support at 2953 on a closing basis for July cocoa or we will have to believe that the trend is decisively down. If support can hold, however, the market has a chance to build a base of support in the 2953 to 3064 range before making another run at the April highs. There is additional resistance at 3008, a 50% retracement of the March 16th to April 30th rally. A close over 3008 is necessary to slow the spec long liquidation selling.

This content originated from - The Hightower Report.

The market continues to build upon this month’s sharp rally as prices have been able to find support on a very shallow correction from the highs. The longer that prices can consolidate at these levels, the more it will diminish the chances for a retracement sell-off that potentially could exceed $100. Along with the general benefit of a weaker Dollar, any sustained strength in the British Pound will give an additional boost to cocoa prices as the London futures denominated in Pounds made another 32-year high in yesterday’s session. London is down just slightly off of the highs in overnight trade. Reports from West Africa indicate that production for the 2009-10 season is running well behind last year’s levels. Strong grindings data earlier this month from Europe and North America as well as a recovery in equity markets from both those areas will also provide support for this market. Weather appears favorable for the upcoming crops in West Africa growing regions during the rainy season for this region. Rains, however, have caused commercial traders to be a bit concerned with the quality of the beans coming out of the region for the next month. ICE Cocoa warehouse stocks were down 7,577 bags to 4.631 million. Open interest was up 1,244 contracts to 131,004.

TODAY’S GUIDANCE: The lack of much of a technical correction after the surge higher off of the April lows could be a sign of relative strength or could be currency and outside market related but the market is still operating under the negative technical influence of the April 27th closing price reversal. London action is probably one of the key reasons we have not seen much of a correction in the US market.

TODAY’S MARKET IDEAS: Shallow support emerges at the 100-day moving average at $3137 with $3308 as next resistance on a move over $3242.

This content originated from - The Hightower Report.

The market inched lower in choppy trade overnight ahead of the US grind numbers for the first quarter. Traders see a 5-10% rise in the grind. The market reacted negatively to the 8.1% rise in the EU grind so we may need to see a solid number today to avoid disappointment. However, comparisons with the 1st quarter of last year should be easy to beat. July cocoa was able to find some support from yesterday’s price action, benefiting from both a stronger British Pound and from news of a truck drivers strike in the Ivory Coast. With first quarter European cocoa grinding out of the way, the market’s focus will turn towards North American grind numbers. After trading in over a $100 range during the past two sessions, yesterday’s subdued price action may be needed for the market to help find its direction. The weak price action on Thursday still seems to be the key to the near-term direction and a move under $2835 July could spark increased long liquidation selling. Traders see a shift in the big picture fundamentals in cocoa for the 2010/11 season as we shift to a world production surplus from a deficit last year. This would seem to be the primary reason for the January to March break. Strength in the dollar overnight and weakness in equity markets sets a bearish tone. Arrivals in Brazil and the Ivory Coast are below last year’s pace and it will be important for traders to see improving supply ahead to avoid further tightness in the pipeline. The truck drivers’ strike will also be monitored closely for impact. ICE Cocoa warehouse stocks were down 5,081 bags to 4.695 million.

TODAY’S GUIDANCE: The March-April consolidation appears to be a continuation pattern which would suggest a resumption of the downtrend soon. The trend is down and speculators still hold a hefty net long position.

TODAY’S MARKET IDEAS: July cocoa resistance comes in at $2911 and $2934 with $2835 as light support and then $2672 as a longer-term downside target. It will take a close back over $2958 to turn the minor trend up.

This content originated from - The Hightower Report.