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The cocoa market traded sharply higher last week as a tightening global supply picture continued to take shape. With March cocoa rallying as much as $388 from the Nov 13th low, it is not too surprising to see the market set back on profit taking in the overnight trade. But given the improved technical action, technical corrections still look like buying opportunities. While the ICCO marginally reduced its 2007/08 cocoa deficit outlook by 10,000 tonnes to 77,000 tonnes, there appears to be clear evidence that the global supply outlook for cocoa in the 2008/09 season is tightening. Ivory Coast officials are expecting 2008/09 production to be less than 1 million tonnes this year and Indonesian officials are expecting cocoa output to drop by 7.7% in 2008. In fact, the consistently low Ivory Coast cocoa bean arrival rate this season which is running about 50% slower than year ago, has enabled the trade to push aside global demand concerns despite worsening economic conditions and instead focus on supply issues. Part of the price support last week in the cocoa market certainly stemmed from a highly respected investment bank slashing its 2008/09 global cocoa surplus forecast by more than half to only 21,000 tonnes. But given the stellar gains in March cocoa last month, it certainly appears as if traders are beginning to price in a global cocoa deficit. If the Ivory Coast cocoa arrival rate remains slow, a tightening global supply view could eventually lift March cocoa back to $2,454.

TODAY’S GUIDANCE: The upward price action has been impressive, especially in the face of a stronger Dollar last week and clear evidence of weakening global economic conditions. A weaker Pound looks to have inspired some profit taking in cocoa overnight as the market had certainly become overbought after last week’s sharp gains. But traders should consider price dips to support levels as buying opportunities as long as supply remains tight in the Ivory Coast.

This content originated from – The Hightower Report.
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