CE raw sugar futures soared in their biggest one-day surge in six weeks on Monday on hefty short-covering by funds after barreling through chart-based resistance, while heavy profit-taking pushed cocoa to a two-week low. Liffe robusta coffee futures fell slightly after jumping in the prior session on an unexpectedly sharp fall in exchange stocks, while arabica coffee on ICE Futures US fell for the second straight day.
ICE raw sugar futures climbed for the third straight day on a rally fuelled by fund short-covering after the market broke above resistance around 16.50 cents per lb, basis October. Harvest-delaying rains in top producer Brazil provided some support and had helped lift the benchmark contract above the three-year low under 16 cents hit earlier this month. Total volume shot up around to 177,000 lots, the highest since June 27 and up 80 percent from the 250-day average, preliminary Thomson Reuters data showed.
October raw sugar on ICE rose vaulted 0.45 cent, or 2.7 percent, to settle at 16.92 cents per lb. “I think we broke the logjam around 16.50-16.55 and that has triggered (mainly) fund short covering,” said Michael McDougall, a senior vice president for brokerage Newedge USA.
“Origin is selling but not as heavy as before. Their mindset becomes less desperate while the disciplined funds have to pick it up to cover their losing shorts, a large portion of which were recently put on below 16.50.” Dealers said prices were underpinned by rains in top grower Brazil, which have slowed the harvest and delayed shipments.
This flurry of short-covering comes after speculators reduced their large net short position in raw sugar futures and options, US Commodity Futures Trading Commission data showed. “We feel the market is likely to test the lows again in due course, but whilst weather is a factor, we think it will trade sideways till then as there may be a reluctance to sell short near the historical lows,” said Nick Penney, a senior trader of broker Sucden Financial Sugar.
October white sugar on Liffe closed up $9.30, or 1.9 percent, at $489.10 a tonne. Cocoa futures moved in the opposite direction on relatively heavy volume much of which was profit-taking, dealers said. “The market was really unable to get the closes above $2,380 and the arrivals news in addition to the weaker pound is helping move things lower,” said Hector Galvan, senior market strategist for RJO Futures in Chicago.
September cocoa futures on ICE settled down $53, or 2.3 percent, at $2,280 a tonne, after falling to the lowest since July 16 at $2,269. Total volume was around 25,000 lots, up from the 250-day average for the total session at 22,140 lots, preliminary Thomson Reuters data showed. The rise in the cocoa market over the past two weeks attracted sales from No 2 grower Ghana. A London-based broker estimated Ghana had sold forward around 450,000 tonnes of its 2013/14 crop. Cocoa sales could reach up to 900,000 tonnes in the current season.
Dealers said recent dry weather in West Africa eroded the main crop production outlook and was likely to support prices. “Given that the weather is not helping, prices may push higher,” one London-based cocoa futures broker said. December cocoa in London closed down 30 pounds, or 1.9 percent, at 1,537 pounds a tonne, after falling to 1,534 pounds, the lowest for the second position since July 11. Cocoa arrivals at ports in top grower Ivory Coast were estimated by exporters at 1,383,000 tonnes by July 28, up 6 percent from a year ago.
Liffe September robusta coffee finished down $23, or 1.2 percent, at $1,898 a tonne while November settled down $19, or 1 percent, at $1,894 a tonne. ICE September arabicas ended down 1.10 cents, or 0.9 percent, at $1.2115 per lb. Brokers expected arabica prices to remain under pressure from Brazil’s record off-year crop in its biennial cycle. “Arabicas are getting sold in a market that is fundamentally bearish, and robustas are following suit,” a coffee futures broker said.