ICE cocoa extends short-covering rally, sugar falls

Thursday, 26 January 2012 03:27

NEW YORK/LONDON: Cocoa futures climbed in active trading on Wednesday to their highest since November, extending the previous session's rally, on more short-covering, while early strength in the US dollar helped push sugar and arabica coffee lower.

Cocoa's gains were attributed to market consolidation after Tuesday's 7 percent surge, which was fuelled by short covering as the crop outlook in top grower Ivory Coast appeared to be dimming, dealers said.

"I still think we can see a little more short-covering," said Boyd Cruel, softs analyst for Vision Financial Markets, who added that he sees resistance in the ICE March contract at $2,490 per tonne.

March cocoa on ICE closed up $9 at $2,422 a tonne, the spot contract's highest settlement since Nov. 14, after touching a session high at $2,456.

Total volume exceeded 23,600 lots, up 44 percent from the 30-day average, preliminary Thomson Reuters data showed.

"Ivory Coast supplies may be curbed so we could come back to $2,600 quite easily," fund manager Romain Lathiere of Diapason Commodities Management said.

Cocoa prices fell roughly 30 percent last year with front-month prices on ICE sliding from a 32-year peak of $3,826 in March to a low of $1,898 in December, weighed in part by a record global surplus in 2010/11.

Demand for cocoa is widely expected to surpass supply in the current crop year, which should help prices recover some of what they lost last year, a Reuters poll of 20 analysts and dealers showed. Top-grower Ivory Coast has seen months of dry and windy weather hampering growing operations.

"In Q1 2012, prices are set to gradually increase on market fundamentals, a supply deficit and concern about adverse weather conditions," ABN AMRO analyst Thijs Pons said in a quarterly outlook.

May cocoa on Liffe rose 4 pounds to settle at 1,599 pounds a tonne, the highest settlement for the second position since Nov. 17. Earlier it peaked at 1,621 pounds.

Raw sugar futures on ICE settled lower for the second straight day, slipping further away from the two-month high of 25.21 cents a lb set early in prior session. However, it remained rangebound in a subdued session with the potential to slip lower in the days ahead, dealers said.

March raw sugar futures on ICE dropped 0.38 cent, or 1.5 percent, to settle at 24.51 cents a lb.

The key March raw sugar contract tried to get past 25 cents, but could not do so, making it more likely that the momentum in the sweetener could head lower, the dealers said.

Cash activity in the market has been slow and the prospect of supplies flowing out of India has served to keep a lid on sugar.

"The retracement we see today is technical more than anything else," Lathiere of Diapason said.

The setback mirrored the lower prices early on Wednesday in crude oil and other commodity markets. The pressure then was attributed to Greek debt concerns and early gains in the US dollar.

Sugar briefly pared its losses after 12:30 p.m. EST (1730 GMT) after the Federal Reserve encouraged investors with a promise to keep US interest rates at ultra-low levels at least until late 2014 to support the economic recovery. The dollar weakened and world stocks erased losses.

London March white sugar futures fell $12.20, or 1.9 percent, to close at $645.50 per tonne.

Arabica coffee prices on ICE also were lower with March dropping 3.25 cents, or 1.5 percent, to close at $2.1720 per lb.

"On coffee I think the floor is around 200 cents. We still have some problems with high quality coffee beans from Colombia," Lathiere said.

Arabica coffee futures are likely to rise 1.4 percent by the end of 2012 but stay well below a 14-year peak hit last year as concerns about the global economy may overshadow prospects of a supply deficit, a Reuters poll showed.

The spot arabica contract was finding a base around the $2.16 level, Vision's Cruel said.

"If we continue to hold it, we should be able to see a technical recovery here. If we hold this, we should see a bounce up to the $2.22-level," Cruel said.

March robusta coffee on Liffe inched up $1 to finish at $1,889 a tonne.