CSCE cocoa futures rallied to close at a three-week peak on Monday as commodity funds and short-term speculators bought futures to cut losses on short positions, analysts said.
"There was nothing new in the fundamentals. Today's rally was all short-covering by the funds. If London has carry-over buying Tuesday, we could see New York climb to $1,518," said a trader at a dealing firm, referring to the top of a gap or price void on the charts dating back to March 2.
The benchmark May cocoa contract closed $52 higher at $1,493 a tonne, with a $1,465-$1,507 trading range.
On Friday the CFTC released its weekly Commitments of Traders report, which showed commodity funds holding a larger than expected net short position.
"The highest estimate I heard was for a 16,000 lot net short position," said one floor broker.
The net speculative short position in cocoa increased to 17,239 contracts as of March 16 from 10,804 lots on March 9.
"The funds added to these shorts the balance of the week, so they have a big short position on at prices below the market. If cocoa fills the gap up to $1,518, the funds are going to cover even more shorts," said another trader.
July cocoa gained $49 to close at $1,495, while the back months settled from $45 to $50 higher.
Estimated volume rose to 9,071 contracts Monday from just 4,455 lots Friday. In the neighbouring options pit, an estimated 551 call options and some 726 puts traded.
In fundamental news, cocoa arrivals at ports in Ivory Coast reached 1,025,931 tonnes between the start of the 2003/04 (October-September) campaign and March 6, official data from the Coffee and Cocoa Bourse (BCC) showed on Monday.
That compared with 1,036,856 tonnes delivered to ports during the same period of the 2002/03 season, according to official BCC data.
Analysts suggested that demand for cocoa beans and products would be the market's driving force the next several months, with cocoa farmers in top producer Ivory Coast starting the harvest of the mid-crop, which normally runs from April to September.
"In the time between the main and the mid-crop, consumption or demand should be a more important factor," said one broker.