wmeubank@ocp.kcmo.com
COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(August 14, 1997) COCOA: Spec buying and trade selling in another uneventful day with no news. The size of the crop from the Ivory Coast, the world's largest producer will be important to the market. An anonymous report was circulating recently that suggested the Ivorian cocoa crop would reach 1.1 million tonnes depending on the weather the next few weeks. I think this is the market equivalent of a crank call. I have never before heard of an anonymous report. If a person won't put their name to it, it's probably not very meaningful. However, depending on the weather, that forecast is not totally out of line. The main feature was rolling over of positions from September to December. First notice day is August 18. Recent action suggests that traders should view cocoa as a buy on pullbacks. The pound will remain important as the London exchange and the New York exchange are the primary markets for cocoa. Arbitrage activity is a regular feature. Reports of good rains and an improved Ivorian crop are negatives. However, precip is still behind average. There is concern that El Nino will be an issue later in the year. The governments of Southern Hemisphere countries are taking this seriously, so perhaps should we.
RECOMMENDATION–Aggressive traders should buy December cocoa on pullbacks to the 1500 level. Taking out 1490 would imply further downside, but cocoa has a tendency to be a choppy market, so follow-through may be lacking. Be alert for reversals. Use stops of 20-30 points or under 1435. Look for a rally back to 1550 or so, possibly to 1580. Resistance may appear near 1540 and 1580. Option traders should begin to price in December calls at current levels.
M. Steven Morgan
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