Cocoa Rises in N.Y. to Cap Biggest Quarterly Gain Since 2001

By Shruti Date Singh

June 30 (Bloomberg) -- Cocoa extended a rally in New York, posting the biggest quarterly increase in seven years and reaching the highest since at least 1986, as crude oil jumped to a record, spurring demand for commodities as an inflation hedge.

Crude-oil futures surpassed $143 a barrel in New York for the first time, signaling higher output and transport costs for cocoa and boosting demand for assets to hedge against inflation. Cocoa jumped 37 percent in the second quarter, the most since March 2001, while the Reuters/Jefferies CRB Index was headed for a 20 percent gain, the biggest since at least 1978.

``Crude oil is setting the tone for all commodities with the weaker dollar,'' said Adam Klopfenstein, a senior market strategist for Lind-Waldock in Chicago, a division of MF Global.

Cocoa futures for September delivery rose $3, or 0.1 percent, to $3,181 a metric ton on ICE Futures U.S., the former New York Board of Trade. The price earlier reached $3,207, the highest for a most-active contract since at least 1986.

Cocoa eased off its high today after the dollar pared losses and crude oil fell from a record $143.67. Commodities became more appealing as alternative investments on a decline of as much as 0.4 percent in the U.S. Dollar Index, a six-currency gauge that includes the pound, used to trade cocoa in London.

``Because of the dollar's intraday weakness, we are catching some light speculative buying in cocoa,'' said Hector Galvan, a senior market strategist for RJO Futures in Chicago.

Most-active cocoa futures jumped 56 percent this year, more than crude oil's 46 percent gain.

The net-long positions for cocoa held by hedge funds and other large speculators increased 5.2 percent to 35,776 contracts for the week ended June 24, the fourth consecutive weekly gain, according to U.S. Commodity Futures Trading Commission data.

Supply Concerns

Cocoa also has been supported by concerns that global supplies may be reduced by poor-quality beans harvested in West Africa and by output declines in parts of Asia, Klopfenstein said.

Trees in Indonesia, the third-largest cocoa producer, have been stunted by disease, with production expected to fall 7.7 percent this year from 2007, the country's industry group said this month.

Quality from West Africa's Ivory Coast, the world's biggest producer, has been ``very problematic'' as properly dried and fermented beans are mixed with moldy supplies, the International Cocoa Organization has said.

Concern that political tension in Ivory Coast may disrupt supplies also has supported prices, analysts say.

Political Tension

``I've been very bullish on cocoa for the simple reason that 40 percent of the world's cocoa comes from Cote d'Ivoire, a country with an endemic civil war raging inside it,'' John Clemmow, UBS AG's executive director for risk management products, said today in a Bloomberg Television interview. ``Any wonder why production keeps surprising on the downside?''

Presidential elections in Ivory Coast have been delayed twice since a 2002 revolt that split the country into a rebel north and a government-run south. The election has been scheduled for Nov. 30.

The United Nations has deployed about 8,000 peacekeepers across the country and plans to monitor the election.

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.
Last Updated: June 30, 2008 15:33 EDT