ICE sugar corrects 4pc lower, coffee up

LONDON: ICE sugar fell sharply on Thursday, extending a technical correction, while arabica coffee was steady, consolidating gains made on chart-based buying.

Cocoa prices were lower as ample supplies and the stronger dollar weighed.

October raw sugar futures on ICE were down 0.83 cent or 2.7 percent at 29.36 cents a lb at 1453 GMT, after dropping to 28.92 cents a lb. The front month peaked at a contract high of 31.85 cents a lb on Wednesday and then closed lower.

"We saw a key technical reversal yesterday, with the market making a new high and then closing below the previous session's low," a London-based broker said.

"There wasn't the follow-through fund buying people had expected after October hit a fresh contract high."

Soft commodities also remained vulnerable to expectations of a return to recession in the United States and Europe, which have weighed on financial markets in recent weeks.

"The global economic slowdown impacts all the agricultural markets through the expectation of lower demand," said Natixis analyst Lysu Paez Cortez.

Brazil's smaller-than-expected crop underpinned the sugar market.

"In the near term, we expect prices to be supported in Q3 on supply downgrades from Brazil but for prices to ease through Q4 and into early next year," Barclays Capital said in a commodities note.

"However, prices and sentiment are likely to remain choppy, swinging between the implications of a weak Brazilian crop on the one hand and robust supply growth across other key producers on the other."

Dealers awaited the latest information on Brazil's harvest from the top sugar producer's cane industry association UNICA, due at 1700 GMT.

October white sugar futures on Liffe fell $18.00 or 2.3 percent to $766.60 per tonne.

COFFEE CONSOLIDATES

Arabica coffee futures edged higher, consolidating recent gains after hitting a three-month high on Wednesday.

December arabica coffee on ICE rose 0.95 cents or 0.4 percent to $2.7470 per lb.

Dealers said bullish technicals continued to support the market, with benchmark December arabicas having broken above several key resistance levels this week.

"Coffee has been looking like a technical market for some time. Its rally off recent lows was not on the back of anything fundamental," a London-based broker said.

"Having said that, there has been a bit of concern about Colombia's coming crop as there hasn't been the big bounce in production people were expecting," the broker added.

Colombia is the world's top producer of high quality arabica beans, and bad weather and a tree renovation program cut its coffee output in 2009 and 2010.

Coffee growers have forecast this year's output at 9.0-9.5 million 60-kg bags, more than the 8.9 million bags produced last year but below historical averages of more than 11 million bags.

November robusta coffee on Liffe was down $48 or 2 percent at $2,326 per tonne.

Cocoa futures were lower as the short-term outlook was for ample supplies to weigh on prices, while an expected fall in global cocoa output in 2011/12 helped underpin the market.

"Cocoa production this year has been very good. There's some anticipation that next season may not be as good," Paez Cortez said.

Dealers are anticipating a record 2010/11 global cocoa surplus after ideal weather helped to produce a bumper West African crop.

December cocoa on ICE was down $61 or 2 percent at $3,026 per tonne, while Liffe December cocoa traded down 26 pounds at 1,911 pounds a tonne.

Copyright Reuters, 2011