London cocoa rallies as pound slumps; sugar, coffee slide
Sterling-based London cocoa futures on ICE jumped and dollar-based New York cocoa fell on Friday as the markets adjusted to a plunge in the pound to a 31-year low after Britons voted to leave the EU.
Raw sugar and arabica coffee futures fell around 3 percent, pressured by the strengthening dollar, falls in other commodity markets notably oil, and political and economic uncertainty following the British referendum.
London cocoa surged as the plunging pound made it cheaper for holders of non-UK currencies to buy sterling-based cocoa futures positions. New York cocoa fell by a similar margin as the two markets adjusted to each other.
“The two markets are broadly fungible, so we have a real arbitrage that should be maintained between them,” said Jonathan Parkman, head of agriculture at broker Marex Spectron.
Referring to the slide in most soft commodity markets, he added, “It’s the political and economic uncertainty which has contributed to this.”
Another senior European trade source said, “It’s sentiment rather than fundamentals. People are working out the foreign exchange effect on the spread, versus the market (sentiment) effect on the spread.”
London September cocoa jumped over 2.5 percent in early trading to a session high of 2,325 pounds per tonne, powered by the slump in the pound, and later traded at 2,324 pounds, up 59 pounds, or 2.6 percent, at 1042 GMT.
New York September cocoa was down $138, or 4.3 percent, at $3,046 per tonne.
Arabica coffee and sugar futures fell, pressured by sentiment across financial and commodity markets after the British vote.
“Market fundamentals will take a back seat today,” a senior sugar trade analyst said.
September arabica futures were down 4.25 cent, or 3 percent, at $1.3865 per lb.
September robusta coffee was down $44, or 2.6 percent, at $1,674 per tonne.
October raw sugar was down 0.47 cent, or 2.45 percent, at 18.72 cents per lb.
August white sugar was down $5.6, or 1.05 percent, at $528.10 per tonne.