Cocoa Heads for Biggest Monthly Drop in 5 Years as Dollar Gains

By Ron Day

Oct. 27 (Bloomberg) -- Cocoa fell for a ninth straight session, heading for its biggest monthly drop since 2003, as the dollar's surge increased the cost of commodities for overseas buyers.

The dollar rose against the U.K. pound for the seventh straight session as investors sought a haven from plunging emerging-market stocks and bonds. That increased the price of cocoa for buyers with pounds, the currency used to pay for the chocolate ingredient in West Africa, the world's biggest supplier.

``It's all about the dollar,'' said Hector Galvan, a market analyst for RJO Futures in Chicago.

Cocoa futures for December delivery fell $21, or 1.1 percent, to $1,956 a metric ton on ICE Futures U.S. in New York. The price last week touched $1,867, the lowest for a most- active contract since Oct. 26, 2007.

Cocoa dropped 6.8 percent last week, and has tumbled 24 percent this month, putting it on a pace for the biggest monthly drop since May 2003.

The dollar surged as much as 4.1 percent against the pound, to the highest in more than six years, after a report on house prices added to evidence that Britain's economy faces a recession. The dollar has gained 27 percent against the pound this year.

The Dow Jones Industrial Average of 30 U.S. stocks fell as much as 2.8 percent today, finishing down 2.4 percent.

Some Gains

Commodities including copper and nickel rose, helping lift the Reuters/Jefferies CRB Index of 19 raw materials. Crude oil, coffee and silver were among nine declining contracts in the index.

Speculation that farmers in Nigeria are halting their cocoa-bean harvesting in order to reduce supplies and boost prices is preventing a steeper slide in the price, RJO's Galvan said. Nigeria is the fourth-biggest producer, after Ivory Coast, Ghana and Indonesia, according to the Web site of the International Cocoa Organization.

Arrivals of cocoa shipments fell 16 percent last month, compared with a year earlier, in the Nigerian capital of Lagos, Reuters reported Oct. 24.

To contact the reporter on this story: Ron Day in New York at rday1@bloomberg.net.