The cocoa rally could be given a new leg by growing concerns about the spread of swollen shoot disease in Ivory Coast plantations, threatening a forecast 18% jump in production in the world's biggest grower of the bean.

The disease, caused by an insect-borne virus, has already infected regions producing 300,000 tonnes of cocoa a year, Commerzbank said.

These include areas next to Ivory Coast's key growing regions of Daloa and Gagnoa, which produce about 300,000 tonnes of cocoa apiece.

"The possible spread of the swollen-shoot virus could hamper the cocoa crop," Commerzbank said.

While the International Cocoa Organization has forecast production rising by 220,000 tonnes to 1.42m tonnes in 2009-10, "this projection may now prove to be too optimistic", the German bank said, adding that prices "should be well-supported in the short run".

'Heavy losses' 

The comments reflect something of a change of tone by the bank, which has in previous comments highlighted the impact of higher Ivory Coast production on markets, although it stuck by a forecast of prices sliding later in the year.

And they come amid a period of high volatility for prices, which swang 5% between high and low on Wednesday as funds sold down positions in a number of farm commodities amid uncertainty caused by President Barack Obama's bank reforms and Chinese moves to slow its economy.

Cocoa, coffee and sugar, suffered "heavy losses as funds and speculators bailed out of their positions", Stephanie Garner, at London-based Sucden Financial, said.

Prices remained volatile on Thursday, dipping in and out of negative territory in both London and New York, if remaining within reach of multi-year highs.

Eight-year high 

In late trade, a rise in New York prices helped it narrow its discount to London, which earlier this week widened to an eight-year high of well above £200 a tonne.

"This is reflective of the higher degree of shortages for cocoa beans in Europe versus the US," Commerzbank said.

Quarterly grindings data released earlier this month showed European demand for cocoa returning to year-on-year growth, while US consumption faltered.