wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(December 12, 1997) COCOA: Futures prices posted strong gains last week on both the London and New York markets. There were no fresh bullish fundamental developments to explain the move, and the strength seemed to be fueled mostly by technically motivated buying.
The advance pushed March futures toward $1,700 per tonne, their best level since mid-November.
The latest audit of the major West European warehouses (located in Belgium, Holland, Germany and the United Kingdom) showed end- November stocks at 789,483 tonnes, up from 746,471 tonnes a month ago. Given the rapid seasonal influx of cocoa from West Africa, we expect to see West European inventories move higher over the next two to three months.
Weekly West African statistics continue to command market attention. The main reason is because these data allow traders to track the region's harvesting progress, while also serving as an indicator of its overall production prospects. In Ghalia, the data are purchasing figures reported by the country's Cocoa Board. As of November 20, cumulative purchases had reached 119,280 tonnes, about the same as the 116,932 tonnes purchased last year during the comparable five-week period. In Ivory Coast, the weekly numbers (estimated by trade sources) represent the cocoa tonnage transported from interior farming areas to coastal export points. As of December 7, arrivals were estimated at 372,000 tonnes versus 398,000 tonnes at the same time last year.
From a seasonal perspective, it is too early in the year for the market to launch a sustained advance. At the same time, we cannot argue with the recent bullish price action. We look for the current move to carry through to the $1,760 area basis March, but would then expect to see a price pullback.
Arthur Stevenson
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