“…For, after all, I had been into cocoa a bit myself. That was back when The Great Winfield had discovered cocoa trading. Occasionally in those more leisured days I would sit with him lazily watching stocks move, like two sheriffs in a rowboat watching catfish in the Tennessee River….”
-'Adam Smith', Supermoney
Following up on last week's "Commodities: Société Générale Sees More Value in Softs Than in Grains":
Even though the row crops are very weak this year SocGen may have a point regarding the softs.
It's still early for some, here's the five-year coffee chart from FinViz...
...While cocoa on the other hand seems to have turned the corner, chart below the jump....
From Hard Assets Investor:
Low rainfall has hedge funds going long in cocoa.
Featured Commodity
CONTANGO WATCH: Gold may get all the flashy press, but cocoa seems to be the sleeper commodity to watch this week. Unexpectedly, cocoa's contango widened more than 5.60 percent, without a similar steepening in the five-year average historical roll cost for this date.
The sharp uptick comes on the back of dry weather reports out of West Africa, threatening the October crop. Weather has been the central mover for cocoa all last week, with traders tracking rain forecasts as a means to predict supply for the fall.
Bloomberg reported comments from Citigroup Inc. futures specialist Sterling Smith on Tuesday: "There's more supply coming into the warehouses, and that's naturally bearish for the market. Cocoa has moved up very quickly, and if we get any rains this weekend, that's going to probably push prices lower. If we don't, we will continue to move higher."
According to Agrimoney, hedge funds have raised their net long position in New York cocoa futures and options to a five-year high as a result of these weather-related concerns over pod development.
"It could be very likely that the deficit forecast for 2013-14 would start to widen and continue to push up prices," Joyce Liu at broker Phillip Futures said.
Widening long positions may also be behind last week's inflows to the iPath Dow Jones-UBS Cocoa Total Return ETN (NYSEArca: NIB). The fund raked in $11.51 million, accounting for 32 percent of its total AUM.
ROLL COSTS: It costs investors 8.43 percent annualized to roll front-month cocoa contracts, up from a cost of 2.79 percent.
BOTTOM LINE: Contango...
