Coffee, cocoa slump on weak US jobs data

Saturday, 09 July 2011 00:16

NEW YORK/LONDON: Coffee and cocoa futures reeled on Friday after disappointing US jobs data rekindled fears a weak macro-economic outlook will zap demand.

Sugar ended mixed, with raw sugar easing on late investor sales, although losses were minimized by concern that a small cane crop in top producer Brazil will shrink further.

Trading was light, with volume in New York soft commodities ranged from one-fifth to 50 percent below the 30-day norm at 2 p.m. (1800 GMT) when the markets here close for the day, Thomson Reuters preliminary data showed.

Country Hedging Inc analyst Sterling Smith said cocoa futures could not sustain an advance that hoisted the market well above $3,000 a tonne in the United States and 2,000 pounds a tonne in London.

"Softs reacted a little bit to (this report)," he said, adding though that cocoa's downturn was caused more by profit-taking because its recent surge was overdone.

He said the performance of the softs complex next week will "depend on how the macro picture takes shape."

The dollar tumbled after US data showed a rise in nonfarm payrolls that was weaker than even the most dire forecast in a Reuters poll of economists, raising expectations that the Federal Reserve will leave interest rates low well into next year.

The unemployment rate rose to 9.2 percent, and financial markets took a drubbing from the data.

New York's September cocoa contract fell $95 to close at $3,091 per tonne. London's September cocoa contract slid 69 pounds to finish at 1,944 pounds per tonne.

Arabica coffee futures dropped on pressure from lower-than-expected US nonfarm payroll data while the expiry of August options on Friday, kept the market around the $2.65 per lb level, dealers said.

Newedge USA vice president of institutional sales Rodrigo Costa said September is in a range between $2.40 and $2.70.

He said it would be hard "to see it going up much higher above this range, especially when we're going through the Brazilian harvest and we probably won't see funds with short positions anymore."

ICE September arabica futures lost 5.30 cents to close at $2.633 per lb. Liffe September robusta futures shed $26 to end at $2,437 a tonne.

RAW SUGAR TUMBLES LATE

Late investor sales hit the sugar market after raws defied early weakness to push higher for most of the session.

Traders said the market's attention is increasingly turning to disappointing yields that will cut Brazil's 2011/12 production of both sugar and ethanol biofuel below last year's levels, the technical director at Brazil's cane industry association Unica told Reuters on Thursday.

New York's October raw sugar contract fell 0.16 cent to close at 29.36 cents per lb, after hitting a contract top at 29.74 cents. London's August white sugar futures gained $3.50 to finish at $818.30 a tonne, having hit a lifetime top at $821.50 a tonne.

For the eight week in nine weeks, raw sugar posted a increase from last week's level, the best stretch for the market since rising in September to December 2010, Thomson Reuters data showed.

Dealers said lower production was likely to lead to supply tightness in the current quarter and also heightened concern about the longer-term outlook.

"A downgrade in production in Centre South Brazil this season could lead to concerns over the following crop, especially as talk has started to flag up the dry weather in the region and the problem of aging cane has not gone away," a European broker said in a daily report.

Below-normal monsoon rains in India, the second-largest producer and top consumer, has also contributed to the rise in sugar prices.

"It is looking remarkably different from a month ago," VM Group analyst Gary Mead said, referring to a period when October raw sugar was trading around 23 cents a lb.

Brazil's cane crop has been hounded by wild swings in the weather -- ranging from rains caused by the El Nino weather anomaly, which disrupted the harvest in 2009, to a drought in 2010 sparked by the La Nina phenomenon. A financial crisis has also squeezed growers' productivity there.