Sugar at 3-1/2-month high, cocoa hits 4-week top

Wednesday, 22 February 2012 23:27

NEW YORK/LONDON: Raw sugar extended its gains and rose to a 3-1/2-month high on Wednesday, in-part due to concerns about nearby supply tightness, while cocoa futures hit a four-week high after climbing above a key technical level.

Coffee futures consolidated lower.

March raw sugar on ICE was up 0.35 cent, or 1.4 percent, at 25.70 cents a lb at 12:47 p.m. EST (1747 GMT) after earlier rising to 25.81 cents, the highest level for the front month since mid-November 2011. The contract continued to climb in choppy dealings after closing above the 200-day moving average at 25.34 cents on Tuesday.

Dealers said there was talk that one major trade house may take delivery of most, if not all, the raw sugar delivered against the March contract which expires on Feb. 29.

"With expectations that a potential receiver is looking to take March (raws) on, the structure is firming and, in the short term, this implies tightness of supply or at least increased off take," Nick Penney of Sucden Financial said in a market update.

The premium for the front month creeped up to 1 cent, up from around 0.90 at the close on Tuesday.

"Prices have been recently supported by a slowdown in exports from Brazil in January and downgrades to Mexico's sugarcane harvest following the ongoing drought," Goldman Sachs said in a market note on Wednesday.

"The near-term tightness limited the impact of the recent announcement of exports from Pakistan and the additional million tonne of sugar exports allowed by the Indian government," the report added.

London May white sugar futures climbed $6.10, or 1 percent, to end at $649.30 per tonne.

Wilmar International Ltd posted a 57 percent jump in quarterly profit, boosted by a huge revaluation gain in its core palm oil business and from its enlarged sugar operations, but investors dumped shares on concerns about declining margins.

BROAD COMMODITY COMPLEX WEAKENS

Concerns over the health of the global economy dampened the appetite for riskier assets with data showing the euro zone may be sliding back toward recession and signs the region's crisis may be hitting China's giant economy.

The 19-commodity Thomson Reuters CRB index eased 0.2 percent to 321.73 points.

Concern about damage to the Ivorian midcrop, however, helped to keep cocoa futures slightly higher, despite the sharply lower sterling against the US dollar, which typically weighs on the ICE cocoa futures.

One dealer said about the midcrop in Ivory Coast's northern region: "Lots of young trees completely shed their leaves. I think there is some damage to the midcrop."

ICE cocoa extended Tuesday's gains on ICE after rising above the 100-day moving average of $2,407 per tonne basis the second position, attracting technical buying.

May cocoa on ICE rose $14 to settle at $2,438 a tonne, the highest settlement since Jan. 26. The March contract closed at a $19 premium to May, compared with 32 on Tuesday.

On Liffe, dealers said a key short-term focus was the expiry of March options on Liffe next week.

"There are a few strike levels that have fair size open positions, notably at 1,600 (pounds a tonne)," one dealer said, noting there were more puts than calls at that strike price.

March cocoa on Liffe rose 23 pounds to close at 1,571 pounds a tonne while May ended up 22 pounds at 1,578 pounds a tonne.

Arabica coffee futures on ICE fell in an inside day, giving back Tuesday's gains and tracking losses in many other commodity markets linked to diminished risk appetite. The market felt pressure from profit-taking and origin selling.

"Brazil is quiet but everyone else is not," one New York dealer said, referring to Central American selling.

May arabica coffee eased 3.80 cents, or 1.8 percent, to $2.0225 per lb.

The coffee market was also weighed by continued expectations for a large crop in top grower Brazil.

"We expect the 2012/13 supply response of recent high coffee prices will likely generate a surplus under average weather conditions," Robusta coffee futures on Liffe were also lower with May closing down $23 at $1,950 a tonne.

March closed at a $2 discount to May with diminished concern about potential tightness in available deliverable supplies. The front month had soared to a premium of more than $200 to May last week.