Cocoa prices drop from 10-month high

Cocoa prices fell from a 10-month high in New York as forecasts for rain in West Africa, the world’s biggest growing region, eased concern that a developing El Nino weather pattern would damage crops.

Isolated showers with intervals of sunshine will favor crops in Ivory Coast and Ghana, which grow more than half the world’s cocoa, DTN Meteorlogix LLC said today in a report. Earlier this month, Fortis Bank said output may drop by as much as 406,000 metric tons in the 2009-2010 crop year if the “most severe” form of El Nino brings too much rain or not enough.

“Good precipitation is keeping people from really buying things up,” said Hector Galvan, an RJO Futures senior market analyst in Chicago. “Weather has always been a key factor of where we should price cocoa during the mid-crop season, and the nice rains have alleviated some of the pressure.”

Cocoa futures for September delivery fell $37, or 1.3 percent, to $2,870 a metric ton on ICE Futures U.S. in New York. Earlier, the price reached $2,935, the highest for a most-active contract since Aug. 29.

The commodity may rebound should U.S. equities rally, said Adam Klopfenstein, a Chicago-base senior market strategist at Lind-Waldock, a division of MF Global Ltd. Before erasing gains today, the Standard & Poor’s 500 Index rose to 982.49, the highest in eight months.

“An S&P move above 1,000 could spark the next jump higher for cocoa, but the lack of recent follow-through on the index has been a bearish factor,” Klopfenstein said. “Now, favorable weather is telling people that the supply will be there as well.”

Cocoa has gained 14 percent this month, partly on signs that demand from processors in North America slowed less than analysts expected.

“All that bullish news has already been factored into prices, and it’ll take new, industry-specific information or a strong equity market to propel cocoa above the $3,000 range,” Klopfenstein said.

Source: Bloomberg