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(March 7, 2002) COCOA: Bullish talk continues to make the rounds, but it's old bullish news. At this point, the cocoa market needs to make a new high to suggest that the bull has not stumbled.

Rain is forecast for hitherto dry areas of the Ivory Coast, which should aid the mid crop. There is some talk of El Nino being a factor in the next year's cocoa production. El Nino is seen as causing drought in various parts of the Asian region. I suspect cocoa may be turning into a cheap shot on the short side.

Germany, a major player in the cocoa industry, is still a modest buyer at best. This could mean two things. One is they finally throw in the towel, buy at current levels or higher, and push the market still higher. The other is that they continue their wait for lower prices, and the market becomes discouraged as demand is falling off on the price rise.

I've made no secret of my skepticism on the reasons behind this rally. I have no problem buying or selling on technical indicators, but I find myself uneasy when the story I am hearing from traders is contrary to news from the producers. For example, the poor crop story. Reuters reports that Ivory Coast, the number one producer of high quality cocoa, has seen arrivals up 7% over the same period last year. I suspect that not only is there plenty of cocoa, but also plenty of bull. I remain a skeptic on the upside move.

M. Steven Morgan

www.commodityreview.com

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