by Agrimoney.com
The revival in cocoa futures, after they fell 25% from March's 32-year high, may prove nothing more than a temporary interruption in their correction, as the prospect of soaring West African supplies weighs on prices.
Cocoa prices have rebounded more than 5% in New York from a four-month low set on Tuesday, amid talk of bargain-hunting by consumers and lingering concerns over the resumption of exports from Ivory Coast, the top producer, following the lifting of a ban on shipments.
"Cocoa processors have shown a readiness to buy at declining levels," analysts at VM Group said.
"Many of them are able to show their finance departments a good result, as they have fortunately been able to buy well below what they thought they would face at the start of the year."
Meanwhile, among financial investors, there is an "obvious reluctance" to take short positions on cocoa, given that "only the brave or foolhardy" have visited Ivory Coast since December, and the rise of political tensions which led to the export ban.
'Impressively bearish'
However, these factors appeared unlikely to support prices for long, given the prospect of shipments resuming from Ivory Coast in earnest.
Olam International, the Singapore-based multi-commodities group, has forecast that 150,000 tonnes of the 500,000 tonnes of cocoa held up in Ivory Coast – equivalent to approaching 13% of world production – will be shifted in May and June.
On Friday, Eric Koffi, the director general of Ivory Coast's cocoa regulator, BCC, said that 80,000 tonnes of the bean had left the country's ports since the export ban was lifted last month, including 55,000 tonnes last week.
Meanwhile, soaring output from neighbouring Ghana, the second-ranked cocoa producer, was "impressively bearish" for prices, said VM, which undertakes research for ABN Amro.
The International Cocoa Organization on Thursday forecast Ghana's cocoa production soaring 52% to 960,000 tonnes in 2010-11, helping global output outpace consumption by 189,000 tonnes.
'Artificial rally'
"It's likely that international prices will start to crumble. This is a bear market for the time being," VM said.
The comments follow a warning from Barclays Capital analyst Sudakshina Unnikrishnan, who earlier this week forecast "further price weakness over coming months" as growing supplies weigh on the market.
At Hightower Report, Terry Roggensack warned that, technical analysis showed that "the market remains inside of a downtrend pattern on the charts".
He also attributed recent strength to purchases by investors of futures to hedge call option exposure, "which provides another clue of an artificial rally".
Cocoa for July stood $2 lower at $3,008 a tonne in morning trade in New York, after having earlier stood up 1.0%, at $3,040 a tonne.
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