Cocoa soars after Olam deficit report

Cocoa futures rallied Monday after commodity house Olam forecast a cocoa deficit in 2012, sparking a short-covering surge following a fresh fall in bean values to a 3-year low earlier in the session. Gerry Manley, the head of cocoa in Olam International, told Reuters in London that world 2011/12 cocoa production is expected to fall around 100,000 tonnes short of grindings, a key measure of consumption, as the market switches back to deficit after a record surplus the previous year.
"It (the Olam news) gave the shorts a reason to cover," said Country Hedging Inc senior analyst Sterling Smith. "(Olam) provided us the bounce in this market." The short-covering spree touched off automatic buy order stops and powered the move in both New York and London, with the two markets moving a combined 12 percent each from their lows for the day to the highs for the session.
London's March cocoa contract went up 81 pounds or by 6 percent to settle at 1,419 pounds per tonne, having hit a three-year intra-day low and contract low at 1,287 pounds and then surging to a day's peak at 1,464 pounds. New York's March cocoa futures rose $114 or 5.5 percent to end at $2,181 a tonne, having touched a contract low of $1,983 and the session peak at $2,246.
US cocoa futures hit its lowest level since November 2008 after dropping more than 28 percent in the past five weeks on ample nearby global supplies and negative macro sentiment. "Cocoa feels very oversold, but at the same time I am struggling to find any bullish arguments to turn the market around," said Kona Haque, a soft commodities analyst with Macquarie Bank.
"People who have been holding contracts for a very long time, likely, are just pulling the plug," said Hector Galvan, senior market strategist for brokerage RJO Futures in Chicago. "Underneath this, no one can tell what's going to happen." The benchmark second position has fallen to the lowest technically oversold level since at least 1973, on the relative strength index. Analysts fear an economic contagion could deflate demand for commodities such as sugar and coffee, depressing prices in t he coming year as a result. Arabica coffee futures broke out of the lower end of the roughly 30-cent range the second position has held for more than two months.
Global coffee markets could remain tight, with prices rising until May 2012 when supplies from producers such as Brazil, Vietnam, Indonesia and Colombia start arriving, putting an end to a bull market, a commodities expert said on Friday. New York's March arabica contract dropped 6.65 cents or by 3 percent to trade at $2.212 a lb at 1:37 pm EST (1837 GMT). London's January robusta futures lost $41 to close at $1,885 a tonne. Sugar was mixed, with dealers saying raws seem pinned in a band between 23 and 25 cents.
Upside potential in sugar prices is limited by expectations of big northern hemisphere supplies from EU countries, Russia and Ukraine. March raw sugar futures on ICE shed 0.08 cent to trade at 23.32 cents a lb at 1:38 pm while London's March white sugar contract rose $1.10 to close at $606.30 a tonne.