COCOA: In Position for a Resumption of the Uptrend; 3047 Next

After a sluggish start to May, cocoa prices have benefited from a positive turnaround in global risk sentiment. If a "risk on" mood can continue early this week, the cocoa market will be in a good position to resume its longer-term uptrend. For the week, July cocoa finished with a loss of 4 points and a second negative weekly result in a row. Global risk appetites continued to strengthen following US jobs data, and that benefitted cocoa prices as that should help to shore up near-term demand expectations. In addition, sizable rallies in the Eurocurrency and British Pound provided carryover support to the cocoa market. While it is well below levels seen last year, consumer inflation remains stubbornly high in many developed economies. As a result, the cocoa market will take some direction from updated CPI readings from the US, Germany and France this week.

On the supply side, there has been an increase in Ivory Coast port arrival totals over the past few weeks, although their full season total is still behind last season's pace. With officials in Ghana saying that their nation will not meet their full-season cocoa production target, the latest Ivory Coast port arrival could give a further boost to cocoa prices if it does not show continued improvement from early April. The May 2nd Commitments of Traders report showed Cocoa Managed Money traders reduced their net long position by 3,992 contracts to a net long 49,491 contracts. Non-Commercial & Non-Reportable traders were net long 57,868 contracts after decreasing their long position by 4,439 contracts.

Today’s Market Ideas

With near-term demand prospects weakened by stubbornly high inflation, cocoa prices would clearly benefit if last week's "risk on" can continue through the weekend. A close above 2942 in July cocoa could signal a resumption of the longer-term uptrend that would be additional support to the market. Near-term support for July cocoa is at 2910, with 3047 as next upside target.