Arabica coffee futures soared to a 3-1/2 month top Monday on tight supplies and fund buying even though the market is seen heavily overbought and due a correction. Cocoa futures vaulted higher as well while sugar crumbled in dealings thinned out by a bank holiday which shut London financial markets while many players were sidelined after Hurricane Irene struck New York on Sunday.
New York's December arabica coffee futures went up 5.25 cents or almost 2 percent to finish at $2.8445 a lb, its highest settlement since May 10. "Coffee is all steamed up and we're seeing short-covering coming in," said Country Hedging Inc senior analyst Sterling Smith.
Arabica coffee futures also derived support from the weak US dollar, fund and investor buying, dealers said. "Coffee continues to move up on continued spec and fund buying," said Bill Raffety, analyst for commodities brokerage Penson Futures. Smith said the market is also fretting about the tight supply situation, especially given that top arabica producer Colombia is just recovering and leading coffee producer Brazil is entering a low-production season in the next crop year.
International Coffee Organisation executive director Jose Sette said the overall picture is in balance, but he conceded that some quality beans "may be tight." "There's new found nervousness about Brazil's crop next year," said Smith. "We're looking at very tight supplies." The Price Group analyst Jack Scoville said in a report that "chart trends...remain generally up" in New York's coffee market with a topside target at $1.90.
US cocoa futures also climbed in thin volume. The benchmark December cocoa contract soared through its 200-day moving average around $3,109 per tonne, attracting more buying. "Cocoa is technically driven, and along with the quality issue and expected (smaller crop) next year are both providing underlying support," Raffety said. New York's December cocoa contract rose $60 to close at $3,135 per tonne.
Trade participants also digested news from ICE Futures US that said no bean stocks were damaged when Irene swept through the area this past weekend. Raw sugar futures, on the other hand, came off on follow-through investor liquidation. New York's October raw sugar futures fell 0.33 cent to close at 29.89 cents a lb.
Fundamentally, the market is looking at a smaller crop in Brazil's premier center-south region, questions over India's sugar export plans, and the likelihood of hefty Chinese sugar imports in the coming months. Market bears point to the fact though that supplies remain abundant and a surplus is forecast this season.
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