DJ ICE Cocoa Perks Up As Buying Surfaces In Oversold Market
By Tom Sellen
Of DOW JONES NEWSWIRES


KANSAS CITY (Dow Jones)--Cocoa futures climbed Thursday as the market, which
had recently fallen to 14-month lows on expectations of increased supplies,
finally attracted buying interest.

Cocoa for December delivery rose $50, or 1.9%, to $2,739 a ton Thursday on
ICE Futures U.S. in New York. Prices settled off the intraday peak of $2,784 as
traders took profits.

Cocoa futures have been lifted the last three sessions as traders bought back
previously sold positions, and as new buying entered the market, a broker said.
Cocoa had been oversold, so a technical correction was anticipated.

December cocoa futures had fallen 20% since reaching a high in July of
$3,210, following news that hedge fund Armajaro Asset Management had taken
delivery of a substantial part of the physical European cocoa market, sparking
fears of a supply squeeze. There had been speculation that the hedge fund took
delivery of the cocoa in anticipation prices would rise. Instead, cocoa futures
fell sharply.

"When the market failed to rally after that [Armajaro purchase], it chased a
lot of longs out of the market," said Sterling Smith, analyst at Country
Hedging in St. Paul, Minn.

Cocoa has been pressured in large part by expectations of increased supplies
out of top producer Ivory Coast in the crop year that begins Oct. 1. Farmers
will begin harvesting the main crop in early October, which will run through
March.

Though weather has been mostly favorable for crop development, recent heavy
rain in Ivory Coast's growing areas bears watching, traders say. While the
moisture is beneficial for developing cocoa pods, too much rain and not enough
sunshine can spread disease.

Ivory Coast cocoa production has been in decline, however, as output suffered
from aging orchards, a lack of investment in the sector and the preference of
alternative crops, such as rubber trees. Production has fallen to five-year
lows.

Despite the recent modest rebound in cocoa prices, the market may have a
tough time gaining further momentum, said Tom Mikulski, senior market
strategist at Lind-Waldock in Chicago.

"Three days of [higher prices] compared to the massive downturn we
suffered...I'm just not very enthusiastic. This is still a good place to sell,"
he said.

The focus is now shifting to presidential elections scheduled for Oct. 31 in
Ivory Coast. President Laurent Gbagbo signed a decree last week validating a
final voter list, which is expected to pave the way for the long-delayed
elections.

It remains to be seen whether the elections will lead to political stability
for the country that has been divided since 2002, or initiate violence that
could snarl cocoa shipments out of the nation.

"This is the new chapter that we're entering in cocoa," said Smith.