Cocoa has been one of the darlings of 2007, says James Cordier, head trader at Liberty Trading. “And if you believe in the commodity bull run, it has the best fundamentals: smaller production in 2007 and insatiable demand. That’s a recipe for higher prices.” Greater demand for dark chocolate, which requires five times as much cocoa to produce as milk chocolate, is a bullish factor. In addition, the Ivory Coast, a leading producer, suffered a drought in 2006 cutting production by 15% to 20%. “We have a two-tiered market with lower supply and higher demand,” he says. In May, the July contract could trade up to $2,100 per metric ton, with a low at $1,950.
Peter A. Thomas, senior broker, at RJO Futures says he has been long cocoa for a long time and sees no reason to get out. During a trip to South America to inspect cocoa crops, he noticed some problems indicating early grinds would have low butter yields. Now the European Cocoa Association is reporting that first quarter chocolate sales were around 300,000 tons, which suggests that the first quarter has been heavily bid. “Demand is up 3.9% and continues to go up, and the butter yield is down, so they have to buy even more,” Thomas says, adding that he is looking for a breakout above $1,910 per ton, and that cocoa could trade up to $2,000.