Cocoa hits 4-week low, large surplus weighs

LONDON: Cocoa futures on ICE slid to their lowest for around four weeks on Thursday and nearby discounts widened further as the market struggled to absorb a large global surplus.

Arabica coffee futures were also lower although early losses had been trimmed while raw sugar rose as a reduced production outlook in Brazil continued to provide support.

Dealers said there was large volume on the September-December cocoa spread on Liffe at a discount as wide as 48 pounds a tonne.

"That reflects the bumper amount of cocoa which is coming in. Nobody really wants to hold on to cocoa at the moment," one London dealer said.

The International Cocoa Organization in late August raised its forecast for a world cocoa surplus in 2010/11 to 325,000 tonnes, broadly into line with trade estimates.

December cocoa on ICE stood $30 or 1.0 percent weaker at $2,924 a tonne at 1358 GMT after touching $2,910, the lowest level for the contract since August 12.

Prices on Liffe also slid with December down 17 pounds or 0.9 percent at 1,874 pounds a tonne.

Arabica coffee futures on ICE weakened as the market retreated further after rising last week to the highest level in nearly four months.

Dealers said the market remained underpinned by tight supplies of washed arabicas following several consecutive below expectation crops in Colombia.

"ICE certified stocks are falling again and Colombia has had disappointing production," a London-based broker said.

Dealers said the prospect of a large Brazilian crop next year, an on-year in the world's top producer's biennial cycle, could eventually weigh on prices.

"We've got the flowering season coming, if that goes well and it looks as though Brazil will have a good crop next year, that will put downward pressure on the market," the broker added.

ICE December arabica coffee futures were off 1.35 cents or 0.5 percent at $2.8315 per lb after rebounding from a session low of $2.81.

The contract rose as high as $2.9085 last week.

New York coffee is expected to consolidate in a range of $2.7830-$2.9085 per lb with the likelihood to rise to $2.9085, according to Reuters technical analyst Wang Tao.

Robusta coffee futures on Liffe edged higher with November up $7 at $2,180 a tonne.

Vietnam, the world's second-largest coffee producer after Brazil, will run out of beans soon and have no stocks to carry forward to the next 2011-2012 season, an industry official said on Thursday.

ICE raw sugar futures rose on support from concern about the crop outlook in top exporter Brazil following recent downward revisions to production estimates.

"We believe there is now a stark realisation in the market that more investment is needed in Brazil's sugar sector if it is to continue to support global sugar demand," Standard Chartered analyst Abah Ofon said in a market note on Thursday.

ICE October raw sugar futures were up 0.35 cent or 1.2 percent to 28.76 cents a lb.

"Key support seems to be just above 28 cents and we probably have stops just below that level," brokers Sucden Financial said in a market note adding there were also expected to be buy stops above 29 cents.

October white sugar futures on Liffe rose $3.90 or 0.5 percent to $759.50 per tonne.

India is likely to allow unrestricted exports of 2.8 million tonnes of sugar in 2011/12 season, a Reuters poll showed on Wednesday, up from 1.5 million tonnes so far this year and the second straight year of exports from the world's top consumer.

Copyright Reuters, 2011