Morning Cocoa: Has the Supply and Demand Fundamentals to Trend Higher
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Cocoa prices were unable to extend their winning streak to a seventh session in a row, but they will start today's action 190 points above their late January lows. Although there have been some bearish supply-side developments, the longer-term supply/demand outlook remains bullish which can help cocoa to regain upside momentum. The latest weekly reading for Ivory Coast port arrivals came in above last year's comparable total, and that has kept the full-season total close to or slightly ahead of last season's pace. This weighed on cocoa prices as it indicates recent hot and dry weather is helping out with harvesting, drying and transporting cocoa beans.
While the "Harmattan" winds during the current "dry" season are thought to be milder than normal, these conditions are likely to have a negative impact on the region's upcoming mid-crop that will be harvested starting in April. As a result, it remains likely that this season's Ivory Coast and Ghana cocoa production will come in significantly below last season's total. In addition, a mild pullback in the Eurocurrency was another source of carryover pressure on cocoa prices as a period extended currency weakness will make it more difficult for Euro zone grinders to acquire near-term cocoa supplies.
MARKET IDEAS
An outside-day down from a 3 1/2 month high usually leads to some downside follow and after their recent rally, this could be the catalyst for profit-taking. West African production should come in lower than last season while global demand is improving, however, and that can help cocoa remain well supported on pullbacks. Near-term support for May cocoa is at the 2642 to 2614 level, with resistance at 2737 and 2823.