NEW YORK/LONDON: Cocoa futures dropped to their lowest level in more than two years on Tuesday on computer-based selling and in sympathy with earlier weakness in other commodities linked to slower-than-expected Chinese growth.
Arabica coffee futures reversed higher as the commodity complex started to recover, while raw sugar futures stayed little changed, with the market consolidating after a steep rise during the last few days.
Investors voiced caution after the Chinese growth data and a warning to France about keeping its top credit rating caused world stocks to slip and government bonds to rise.
The bearish sentiment weighed on the heavily traded cocoa markets, with the US market feeling additional pressure from a weak pound against the dollar. System and black box selling accelerated after the December contract fell through $2,540 per tonne, dealers said.
"It's more of a combination of the macro risk-off mode again and the dollar strength and the fact that cocoa did finish the 2010/11 (year) with a bearish crop surplus," a cocoa dealer in New York said.
December cocoa on ICE fell $51, or 2 percent, to settle at $2,571 a tonne, after falling to the lowest intraday level since July 2009 at $2,523. Total volume was heavy at more than 25,400 lots by 12:13 p.m. EDT (1613 GMT), the highest since mid-August.
Liffe March cocoa futures fell 7 pounds to finish at 1,702 pounds a tonne, after dipping to 1,675 pounds, the lowest level since July 2009.
"It seems that West Africa's main crop will be better than expected," said Carsten Fritsch, analyst at Commerzbank.
The supply outlook for the cocoa market remained bearish following a record surplus in 2010/11 and favorable weather conditions for the 2011/12 crop.
"We are going to get the origin-related selling and that pressure will be coming into the market within the next couple of weeks," a London-based broker said, noting that harvest is underway in West Africa.
Coffee prices also dipped following a key reversal on Monday, although the arabica market reversed higher as some commodities like US crude oil turned up and the dollar pared gains.
December arabica coffee futures on ICE were up 1.25 cents, or 0.5 percent, at $2.3525 per lb by 12:09 p.m.
Dealers noted light bargain hunting demand from roasters, although they generally appeared to be well covered. Central American coffee growers are counting their losses after two weeks of rainstorms have felled coffee trees, ruined roads and threatened to spread fungus on plants.
"We had a short covering rally and it has run out of steam. I think longer-term we are headed lower," one London dealer said, noting favorable prospects for crops in the top two producers Brazil and Vietnam.
November robusta coffee on Liffe dropped $30, or 1.6 percent, at $1,905 a tonne.
Raw sugar futures crawled higher on investor buying and talk of physical demand with Malaysia among possible buyers in the next couple of weeks stoked the steady tone of sugar. The sweetener bucked early weakness sparked in part by renewed worries over the euro zone debt crisis.
March raws were up 0.07 cent at 27.86 cents a lb while December whites dipped $2.10 to $712.90 per tonne.
The Price Group senior analyst Jack Scoville said that with raw sugar prices spending a large part of the year above 30 cents and near three-decade highs at 36 cents, a fall toward the mid-20 cents area is an attractive level for possible consumers who need to book sugar orders.
"It seems many are questioning the validity of the rally over last week as the volume was relatively thin with clear short covering coupled with patchy producer hedging," Thomas Kujawa of Sucden Financial said in a market note.
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