Raw sugar futures on ICE rallied in their biggest surge in three weeks on Wednesday after a breach of the prior week's high attracted fund buying, while arabica rose in a volatile session. Cocoa futures on both ICE Futures US and Liffe inched higher. May raw sugar futures on ICE closed up 0.39 cent, or 2.3 percent, at 17.36 cents a lb after peaking at 17.53 cents, their highest level for almost two weeks.
Copyright Reuters, 2014
"There was some producer covering from Asia," said one US broker, referring to short-covering from Thailand. "If dry weather continues, then next year's crop could be compromised." Thailand is the world's second-biggest sugar exporter. Although its sugar production has not been affected by the dry conditions, its cane output has been lower than expected, the broker said.
When the market reached 17.37 cents per lb, last week's high, chart-based fund buying lifted the market even higher, dealers said. Some sugar dealers attributed the rally to expectations that a report by Brazilian cane industry association Unica would show further erosion in output prospects as a result of the drought, but the bi-weekly cane crushing data was unchanged as the season is over. Unica told Reuters no other information was scheduled for release on Wednesday and that a forecast for the new cane crop would be released in early April.
The market also derived support from the growing likelihood of an El Nino weather event. "Worries over El Nino are likely to have an impact on the market," said Juan Ramos, a soft commodities broker with Tullett Prebon. "The likelihood of El Nino is increasing." Liffe May white sugar futures closed up $9.80, or 2.2 percent, at $463.40 per tonne.
Trading in arabica coffee remained choppy with the extent that the drought has diminished the coffee crop in top grower Brazil also remaining unclear as varying amounts of rain have eased dry conditions. The market is reflecting the uncertainty of the crop condition in Brazil's arabica growing regions, with the extent of the damage not expected to be known until harvest gets into full swing in May or so.
"There is still a lot of confusion in the market over the effectiveness of the rain being able to ease crop damage," analyst Vanessa Tan of Phillip Futures said in a market note. Dealers said day traders were buying into the lows and selling the small rallies, with the market down about 15 percent from the two-year high reached two weeks prior. May arabica coffee on ICE settled up 0.70 cent, or 0.4 percent, at $1.76 per lb after changing direction several times during the session.
Myrto Sokou, senior research analyst with Sucden Financial, said she expected consolidation in second-month arabicas around the $1.70-$1.78 area. May robusta coffee firmed $7, or 0.3 percent, to settle at $2,080 a tonne. Cocoa was little changed. Expectations that the pace of demand growth would outstrip any increase in supply remained a supportive factor, with forecasts for a global deficit. May cocoa on ICE rose $14, 0.5 percent, to finish at $2,963 a tonne, while May cocoa on Liffe ended unchanged at 1,875 pounds a tonne.