From the March 01, 2010 issue of Futures Magazine • Subscribe!

Cocoa cold

Prices for cocoa were not so sweet throughout January and into early February as cocoa tumbled downward and analysts see no end in sight to the slide.

Spencer Patton, chief investment officer at Steel Vine Investments, says cocoa is due for an oversold rally. “I’d look for cocoa to get back up to about $3,200 (per metric ton), and that’s where it will be [at the beginning of March]. Once it works off some of the oversold condition that it’s in, this market will be continuing lower. I see it going down and testing support around $2,750 to $2,800.”

Patton says that cocoa has been more sensitive than any other commodity to trading inversely to the U.S. dollar. Cocoa has fallen as the dollar has risen. “It has been traded not as much on its fundamental supply and demand [but rather] as an inflation hedge, so I would look for cocoa to suffer at the hands of a stronger U.S. dollar.”

Darin Newsom, senior analyst at Telvent DTN, agrees that fundamentals aren’t pushing cocoa. “Fundamentally, we’re not seeing a round of cocoa purchasing that we might expect this time of year. [It’s] going against its seasonal tendencies, it’s got a bearish structure. That could keep the market on the defensive into March.” He expects cocoa to be back down near $2,690 in March.

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