New York, Sept 24 - Prices of cocoa, the top ingredient for chocolate, could soon power to their highest level in almost 30 years as chocolate makers rebuild stocks and worries rise over supplies from leading producer Ivory Coast.
Cocoa futures on ICE Futures U.S. have been trading at 14-month highs the past two weeks. A break in the spot month CCc1> over the July 2008 peak at $3,385 per tonne would be the highest since February 1980.
"Most of the reason this market's moving up is that the end-user, the people who are using cocoa for their operations, are buying a lot," said Shawn Hackett, president of Hackett Financial Advisors in Florida.
"It seems to me they got caught not buying enough cocoa during the financial crisis over the last six to nine months."
The new 2009/10 Ivory Coast cocoa crop officially begins in October, and some high quality beans have already started to arrive at Ivorian ports.
The harvest normally weighs on prices, but the head of Ivory Coast's cocoa management committee said the 2009/10 cocoa crop will be either flat or down from 2008/09 due to disease and aging trees.
Ivory Coast's annual cocoa production is around 1.3 million tonnes, despite years of political and military strife. A dearth of farm of reforms and investment has started to hit cocoa arrivals, which were around 1,160,000 tonnes with just a week left in the 2008/09 season. ID:nLO185943
"The early numbers don't look promising. It's going to fuel the market. It's a little early yet," said Judy Ganes-Chase, president of J. Ganes Consulting in New York.
"If there's some truth to the production numbers, then it (the market) deserves to be there because they need to keep rationing their supply," Ganes-Chase said.
The spot ICE cocoa futures contract CCc1> closed down 2.8 percent at $3,066 per tonne Thursday, after hitting a 14-1/2-month high at $3,219 on Wednesday.
In London, the second-position cocoa contract LCCc2> hit a 24-1/2-year high at 2,075 pound per tonne Wednesday. On Thursday, it eased 13 pounds to settle at 2,031 pounds.
Ricardo Santos, senior commodities broker for Fortis Commodities Derivatives in London, played down the threat of Ivorian political unrest disrupting the cocoa supply chain. Rather, he said the risk was one the market should monitor.
"The cocoa will find a way through -- the real problem is that it creates delays. To move the cocoa from the bush to the port becomes more dangerous, and hence more costly," he said.
"If there's some unrest upcountry and some of the immigrant workers tend to get nervous and flee, then you end up with issues and people not having the labor," Ganes-Chase added.
RALLY FUELED BY DOLLAR, TECHNICAL BUYING
Some analysts believe the strength in cocoa is being driven by the dollar and technical buying by investors.
Michael Maniatis, market strategist with LaSalle Futures Group in Chicago, said the "dollar sell-off will continue to attract speculators bidding prices higher for cocoa."
While weather in growing areas could provide direction in the next two weeks, Maniatis said that "without some real crop problems squeezing supply, this market could be vulnerable to a sizable correction."
A cocoa buyer in Singapore said any downside should be limited by crop problems in Ivory Coast as well as in Ghana and Indonesia -- the world's No. 2 and No. 3 cocoa producers.
Another critical factor would be the performance of the sterling GBP=>.
"Certainly for London cocoa, sterling will be a huge influence," Kona Haque, senior analyst for Macquarie Bank in London, told Reuters financial television Wednesday.
"What I would expect is to see prices edge up by the end of this year," she said.
Hackett believes the bullish argument will prevail in U.S. cocoa by the end of the year.
"I don't see speculators overly invested and I don't see the commercials overly sold. It suggests to me that this market could run higher," Hackett said.
Doug Whitehead, commodity analyst for Rabobank in London, said he expected origin selling to drag on prices in a few weeks.
"I expect to see cocoa prices fall later this year as the main crops come in (in West Africa)," Whitehead said.