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800-662-9346(March 16, 2000) COCOA: It appears that cocoa is attempting to build a long-term bottom as the arrival pace is finally slowing for the main Ivory Coast crop. We have now passed the period of highest supply and the mid-crop has not received a good rain since January. Demand appears to be slowly recovering. The major losses experienced by Ivory Cost producers over the past year could provide the groundwork for lower acreage and lower production next year. This would occur at a time when world demand is on the rise and prices are at 27-year lows. Any minor disruption in supply or shift in demand should begin to cause prices to firm.
The Cocoa Producers Alliance (12 countries representing 85% of the world cocoa) came out of a meeting last week announcing that they are set to withhold poor quality cocoa from the market. This should amount to near 10% of the total production. There are very few other details of the plan so far and both London and U.S. traders were immediately skeptical that it could be implemented. However, the news provided enough uncertainty to trigger aggressive short covering and new buying last week. The West Africa mid-crop will be the first cocoa to be screened for low quality and withheld from the market. The lack of good rain since January leaves this crop susceptible to stress problems soon. In addition, outside market influences, such as a general price rise in the CRB Index, could begin to have a positive influence on prices. July cocoa should find good support near the 825 level with 981 as first upside objective.
SUGGESTED TRADING STRATEGIES--1) Buy July cocoa at 843 with an objective of 981. Risk the trade to 814. 2) Buy July cocoa 900 calls at 52 with an objective of 138. Risk 30 points on the trade.
For daily market updates of the Hightower Report of Comprehensive Commodity Research, call 900-225-2200, extension 6 for Softs Markets Forecast. The cost per minute is $1.33.
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