Investors Bail on Coffee

Arabica coffee futures hit a 4-1/2 month low and robustas also slid to a 4-month low Monday due to investor liquidation, but cocoa and raw sugar futures climbed on suspected consumer buying.

Cocoa futures in the U.S. rose as industry buying forced shorts to cover positions, although prices were near 5-month lows hit earlier this month. Sugar was buoyed by consumer buying and a slow start to Brazil’s harvest, dealers said.

New York’s September arabica futures declined 4.00 cents to trade at $2.485 per lb at 12:46 p.m. EDT (1646 GMT), having traded at a session low of $2.4705 which is the lowest for the second position coffee contract since Feb. 1.

 London’s September robusta contract dropped $66 to close at $2,276 per tonne, having hit a session low at $2,269, the lowest level for the second position since mid-February.

“I do think the coffee market has lost a lot of its luster and appeal,” Country Hedging Inc analyst Sterling Smith said. ”While supplies remain tight, unless we see a well-defined weather threat from Brazil, the market does not appear to be too nervous at these levels.”

Coffee was also weighed down slightly by news euro zone finance ministers have postponed doling out emergency loans to Greece until the country approves new austerity measures.

“For softs, the link to the Greek debt problems is weaker than for metals and energy, but there is a link,” said Romain Lathiere, fund manager with Diapason Commodities Management.

Temperatures in top grower Brazil’s coffee belt are forecast to be normal to above normal for the next seven days, with no indication of a freeze threatening the region for the next 10 to 15 days.

It is winter in Brazil, which brings the potential for crop-damaging frost but current conditions have taken a lot of risk out of the market.

Volume in the U.S. arabica market was also heavy and already running over the 30-day norm about two hours before the conclusion of trade, Thomson Reuters preliminary data showed.

Sugar futures vaulted higher, with the market propped up by ongoing congestion at Brazilian ports, and concerns over low yields after a slow start to the harvest in the world’s top sweetener producer.

“It seems that sugar is continuing to shrug off weakness in other commodities,” Nick Penney, of brokerage Sucden Financial said. “The markets are technically overbought, however, and we anticipate a correction in the near future if momentum fails to be maintained.”

London’s August white sugar futures went up $12 to close at $739.60 per tonne, having set a three-month top for the spot contract at $741.40. New York’s July raw sugar contract climbed 0.87 cent or by 3.3 percent to trade at 27.24 cents per lb at 12:48 p.m.

July sprang over the 100-day moving average at 26.69 which touched off automatic buy order stops and is now threatening to race past the 200-day moving average at 27.56 cents, Thomson Reuters data showed.

The July raw sugar contract in New York is due to expire next week. Open interest stood at 93,038 lots as of June 20. At the rate positions are being unwound in the market, brokers feel deliveries may not top 10,000 lots on June 30.

Cocoa futures climbed in rangebound dealings on short-covering as the market ignored the bearish fundamentals from a large global surplus widely expected in the current 2010/11 crop year.

“Every time the market comes down to about $2,900 or a bit under, shorts begin to have profit,” Smith said, adding there is pretty good support in the area.

New York’s September cocoa futures rose $51 to end at $2,968 per tonne. London’s September cocoa futures gained 28 pounds to close at 1,857 pounds per tonne.


© Thomson Reuters 2011

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