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(March 26, 2002) COCOA: Lower prices, with commercial buying said to be a feature of trade. The 40-day average, another key average for the funds, is currently at 1465. It is not uncommon to see some congestion develop around these averages, but if it is definitively taken out to the downside, selling could accelerate. That said, a bounce from near current levels is very possible.

Late last week there was a forecast from the Ivory Coast for mid-crop production in the 240,000-270,000 tonne area, well above the guesses for 100,000-200,000 tonnes. A couple of points appear clear at this point. One is that production appears to be greater than the market has accounted for. The other is that the large spec traders, the funds, are still very much a factor in near-term direction. It was also reported that cocoa farmers in the Ivory Coast are looking for a fairly large uptick in production for next year, as the recent price rise has allowed them to purchase fertilizers and pesticides. This will impact next year's crop as opposed to this one, but is negative nonetheless.

Open interest has been on the decline on this last leg higher, suggesting that upside may be over or nearing an end. The chart is becoming negative. That said, if the funds continue to come in as buyers, cocoa is likely headed higher. But I regard that buying as a big "if." Cocoa prices have nearly doubled on talk of production cuts, but those cuts remain a bit elusive. Depending on who you're talking to, cocoa production has been cut or not. End users are said to have remained on the sidelines. Keep an eye on the charts as your guide.

M. Steven Morgan

www.commodityreview.com

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