Cocoa prices bounced off 10-year lows Friday, the day after demand data out of North America and Asia showed signs of a slight recovery.
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Cocoa for July rose 2.8% to end at $1,850 a ton on the ICE Futures U.S. exchange, the largest percentage gain for the most actively traded cocoa contract in a month.
"With the wild drop in cocoa over the past few days everyone is wondering when will positive support come into the market," said Michael Kerensky, trader at RJ O'Brien in New York.
Speculators in the cocoa market added to their short positions for the second straight week following a brief bout of profit taking earlier this month. Hedge funds and other money managers betting on lower prices for cocoa outweighed bullish traders by 32,771 contracts as of Tuesday. Recent attempts to rally have been short-lived in the cocoa market, one of the worst performing commodities this year.
The cocoa market is moving into a year in which supply of cocoa is expected to outstrip demand. The International Cocoa Organization estimated that production of cocoa will surpass demand in the 2016/2017 season that began in October by 264,000 tons, helped along by record production in Ivory Coast, the largest grower of cocoa in the world.
The West African nation is set to produce 1.9 million tons, a 20% increase over last year. With demand up 2.9% and production up 15% globally, the organization (which represents cocoa producing and consuming countries) said the world is expected to have its first significant surplus in six years.
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Following back-to-back years of weak demand brought on by price increases from chocolate makers, North America's craving for the main ingredient in chocolate showed signs of a modest recovery Thursday as North American factories reported a bump to the number of cocoa beans processed in the first quarter.
North American cocoa processors reported a 1.2% increase in beans processed during the first quarter of 2017 from a year earlier, the highest first-quarter tonnage since 2015.
The 120,152 tons of cocoa beans processed by North American factories in the first quarter was also an increase over last quarter when 117,588 tons of beans were processed.
The Cocoa Association of Asia reported grindings Thursday at 177,450 tons, a 19% increase over the same quarter last year but a drop from the preceding quarter, when processing reached 188,493 tons.
In other markets, raw sugar for July was up 0.6% to end at 16.51 cents a pound; arabica coffee for July lost 1% to settle at $1.329 a pound; May frozen concentrated orange juice was down 0.7% to settle at $1.60 a pound; and July cotton moved higher to close at 79.33 cents a pound.
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(END) Dow Jones Newswires
April 21, 2017 17:40 ET (21:40 GMT)