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AFKI Commodities Report: Cocoa Hits 32-Month High; Platinum Nears 3-Year Peak

AFKI Commodities Report: Cocoa Hits 32-Month High; Platinum Nears 3-Year Peak

Cocoa futures climbed to their strongest level since September 2011 on a strong demand outlook. Arabica coffee and sugar slipped lower. Palladium rallied to a near three-year high and platinum futures touched a two-week low as wage talks to end the 18-week strike in South Africa have so far failed to reach a successful conclusion.

Cocoa futures continued their rally this week, supported by a strong demand outlook. July cocoa on New York’s ICE Futures U.S. touched $3,060 a tonne on May 27, the highest price for a second-position contract since early September 2011. In London, cocoa for delivery in September on NYSE Liffe hit £1,911 a tonne, a level also not seen since September 2011.

Cocoa’s strong rally over the past 12 months has been tempered recently by expectations of a larger-than-expected mid crop from West Africa, particularly from top grower Cộte d’Ivoire.

Forecasts of higher mid crop production follow plentiful rainfall across the region’s cocoa-growing areas. Early this month, futures prices touched their lowest since late January on the improved supply outlook. ICE’s second-position contract cocoa contract- at the time July – dipped to $2,849 a tonne on May 10 while Liffe July cocoa touched £1,771.

However, while output will be better than expected in West Africa, another poor crop is forecast for Indonesia, the world’s third biggest cocoa producer. A lack of investment and adverse weather conditions are seen has hampering the country’s cocoa crop.

But Macquarie Bank is among many analysts expecting cocoa to end 2014 strongly. “Growth in global grindings and a well sold origin market should underpin prices, ” the bank said in its latest Commodities Compendium published May 23.

The increasing risk of an El Niño weather event as early as July is also seen as a bullish influence on prices through the remainder of 2014. Macquarie pointed to the tendency for the major cocoa producing regions of West Africa and Indonesia to see “an underperformance” during an El Niño, as dryness normally spreads through both regions.

Meanwhile, arabica coffee futures continue to head south as the market assesses crop conditions in top producer Brazil. ICE arabica futures for July delivery touched a two-month low of $1.708 a pound on May 27 before settling at $1.7615. By close at midweek, July arabica clawed back to $1.766 a pound.

Arabica trading has been volatile since the second-position contract hit a 26-month high late last month on concerns about the extent of the damage to Brazil’s 2014-2015 (April 1-March 31) crop as a result of extreme prolonged hot, dry weather in southern areas of the country – including the major coffee producing states of Minas Gerais and São Paulo – during January and February. Brazil is the biggest producer and exporter of arabica.