Cocoa breached £2,600 a tonne for the first time since the year Elvis Presley died, amid rumours that a major trading house had put a squeeze on the market.

London's July contract jumped 2.2% to £2,606 a tonne, its highest since October 1977 before losing some gains to close up 0.4% at £2,559 a tonne.

The contract's resilience contrasted with that of later London lots and New York cocoa, which slumped more than 4%, a divergence which gave momentum to rumours that the trading house had cornered the market for London's July lot.

"It is certainly an unusual pattern," a trader told Agrimoney.com, adding that such squeezes were "not uncommon" in London cocoa.

They are associated typically with one purchaser taking a large position in the market, reducing liquidity such that other buyers, often those needing to cover short positions, are forced into an expensive auction for what supplies remain.

UK-based Armajaro famously raised eyebrows eight years ago by buyinglarge positions, which resulted in it receiving about three quarters of the cocoa delivered against one contract. The cocoa was for passing on to client companies, Armajaro  said.

Rain disruption

Friday's price jump for July followed data showing that cocoa deliveries in Ivory Coast, the world's top grower of the bean, had reached 984,000 tonnes so far in the 2009-10 marketing year, which started in October, down nearly 20,000 tonnes year on year.

Indeed, heavy rains have pushed up prices being paid to Ivory Coast producers, disrupting transport besides damaging bean quality.

However, Andreas Christiansen, chairman of the German Cocoa Trade Association, said the overall picture for Ivory Coast output was "positive", adding that the world cocoa market was likely to suffer a marginal deficit in 2010-11 of some 1,000 tonnes.

"Too many reports of local bad weather are being blown up out of proportion," he said.

"This is really no significant deficit. It is basically a balance in supply and demand."

Rally's end?

Rabobank's Jake Wetherall questioned whether the fall in cocoa prices on Friday might mark the end of the current stage of the bull run which has driven up prices by 20% in New York this year, and more than 40% in London.

He also noted that it co-incided with the expiry of New York's July contract.

"You often tend to get these kind of unusual moves, some excitement, when you get to the end of a rally," he said.

"You get some short-covering, and then prices fall. The market has obviously been building up to something and this might be it."

London cocoa for September ended 2.4% lower at £2,347 a tonne.

New York's July lot tumbled 4.2% to $2,919 a tonne, with the September contract plunging 4.3% to $2,940 a tonne.