The cocoa harvest is in full swing in the Ivory Coast and some are concerned that the crop is smaller than previously expected. Typically, the crop is predicted smaller ahead of the harvest time and actually increases as harvest progresses. This year may be atypical as the Ivory Coast exporters lowered their crop estimate last night from 1 million tonnes to 850,000 tonnes due to weather concerns. The southeastern part of the Ivory Coast is concerned that too much rain is causing rot problems and the opposite side of the Ivory Coast is concerned that lack of moisture is impeding the springs crop growth. Amongst other things, the Ivory Coast harvest appears to be significantly behind schedule from a year ago. Last year at this time, 348,000 tonnes have arrived at ports versus only 200,000 tonnes so far this year. The important thing to remember is that last year's crop was significantly ahead of schedule and therefore makes this year's crop look further behind than it really is.

Although the Ivory Coast is the largest producer of cocoa in the world, both Ghana and Indonesia may be looking at smaller crops as well this year. Indonesia is already expected to have lowered their crop estimate by 75,000 tonnes to 425,000 tonnes total as a result of El Nino weather conditions. Ghana is expected to yield 600,000 tonnes this year versus 750,000 tonnes last year. Although Ghana is expected to have a lower total production number, the country has been working hard to streamline their warehouse facilities to accomodate the supply and demand of cocoa. This may contain upside price momentum to a degree since the cocoa will be more readily available for shipping.

According to Hightower, the Press made comments that industry buyers are purchasing cocoa on price dips. Hightower believes that this is a bullish indicator longer term.

Technically, the long term trend is still sideways to lower and the near term trend is pointing lower. The market would need to close above 1515 to find a reversal of the nearterm trend. At this point, with the trend clearly lower still and fundamentals turning friendly, I would look for a trend change or a test of major support at 1435 to go long the market. If you have the opportunity to buy at 1435, risk the trade to at least 1325 which is $1100.

Chart copyright 2006 CQG, Inc.