NEW YORK/LONDON: New York cocoa futures on ICE surged more than 4 percent in their biggest rally in six months on Monday, on heavy short-covering and chart-based buying after a report showed that speculators sharply reduced their bullish position.
Sugar and coffee prices eased, falling along with the weakness in larger commodity markets as the US dollar firmed.
September New York cocoa settled up $91, or 3.2 percent, at $2,926 per tonne, after rising as high as $2,952 after US traders got to their desks. This is in sharp contrast to the five-month low of $2,815 reached on Friday.
"We reached extreme oversold levels and strong technical support. Large numbers of shorts liquidated positions as we reached these levels," said Peter Mooses, senior market strategist for RJO Futures in Chicago.
"Bulls have been waiting for these price levels to re-enter the market."
After the markets closed on Monday, US government data showed that speculators slashed their net long position in New York cocoa futures and options by more than 16,000 contracts to an eight-week low.
Traders said that some in the market viewed this as giving prices more room to the upside, which triggered heavy short-covering.
"The longs really didn't liquidate enough, but the bulls use the new shorts as an advantage to run the market higher," said Nick Gentile, managing partner of commodity trading adviser NickJen Capital in New York.
London cocoa prices followed the New York market higher, with September London cocoa closing up 59 pounds, or 2.6 percent, at 2,356 pounds per tonne.
Raw sugar prices fell back near the prior session's five-week low.
October raw sugar settled down 0.24 cent, or 1.3 percent, at 18.81 cents per lb.
Nick Penney, a senior trader with Sucden Financial Sugar, said that any strengthening of the dollar would probably have a negative impact on the technical picture.
"We expect support to be tested and a range to develop between 19 cents and 18.50 cents a lb in the short term," he said.
October white sugar settled down $7.70, or 1.5 percent, at $520.70 per tonne.
Dollar-based coffee futures eased as the firmer dollar made positions more expensive in other currencies.
September arabica settled down 2.75 cent, or 1.9 percent, at $1.4345 per lb, while September robusta settled down $30, or 1.6 percent, at $1,818 per tonne.
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