The cocoa market extended gains Friday to end higher, but remains in a tight trading range thanks to unimpressive demand and large crops.
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Cocoa for July rose 1.5% to close at $1,866 a ton on the ICE Futures U.S. exchange.
The contract has been stuck in a tight trading range for the past three weeks as recent data showing the tonnage of cocoa beans processed show more demand but no significant recovery. Chocolate companies increased prices when beans were pricier, weakening demand.
Traders look for demand to improve as lower prices filter down to the retail level, but chocolate prices have been holding strong. "The fundamentals remain bearish," said Jack Scoville, vice president of Price Futures Group in Chicago.
Sucden Financial said in a note that if the contract manages to maintain its gains, we could see traders testing $1,885 a ton. Last week, when the contract briefly touched that level, it triggered a reversal near $1,750.
"The market continues to trade within a range as traders consolidate recent losses and sentiment isn't strong enough to break out," Sucden research analyst Geordie Wilkes said.
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The cocoa market is entering the smaller midcrop season in West Africa, the world's largest growing region, and favorable growing conditions are preventing any bullish moves in cocoa from taking off.
About 15%-20% of the full year's cocoa harvest comes from the midcrop.
The supply of cocoa is expected to outstrip demand this year. 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.
In other markets, raw sugar for July was down 0.4% to end at 15.31 cents a pound, arabica coffee for July rose 0.6% to end at $1.357 a pound, frozen concentrated orange juice for July rose 0.3% to end at $1.4635 a pound and July cotton lost 1.4% to close at 77.77 cents a pound.
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(END) Dow Jones Newswires
May 05, 2017 16:33 ET (20:33 GMT)