Sugar and coffee drop near two-year lows

Raw sugar and arabica coffee futures fell on Monday, trading near two-year lows on worries over weak global economies and bumper supplies, but dealings were thinned out by a lengthy holiday in England. With Britain celebrating Queen Elizabeth's 60th year on the throne, London financial markets were shut and will not reopen until Wednesday. "London's closed. You have a lot of Europeans that are off," said Nick Gentile, chief of trading in commodity fund Atlantic Capital Advisors in New Jersey.
With gloom spreading over the soft commodity complex, speculators expanded their net short positions in the raw sugar, arabica coffee and cocoa futures and options markets, the US Commodity Futures Trading Commission said last Friday. The July raw sugar contract on the ICE fell to 18.86 cents, the lowest intra-day price since August 2010, and ended down 0.19 cent, or 1.0 percent, to close at 18.90 cents per lb. The session top was 19.13 cents.
Open interest in raw sugar, an indicator of investor exposure in the market, has steadily risen as prices fell. The open interest in raw sugar stood at 777,788 lots as of Friday, June 1, the loftiest since February 22, 2010, when it stood at 790,371 lots, exchange data showed.
"The simple reason why it is going up is that investors are going short on sugar," a dealer said, adding this meant that investors are betting prices will fall further given the bountiful supplies in the market. Arabica coffee futures saw a short-covering pop after spot July touched a near two-year low at $1.5465 per lb. The July arabica coffee contract on ICE rose 0.95 cent to end at $1.5845 per lb.
Brazilian agriculture consultancy Safras & Mercado estimated that the world's top coffee producer will harvest 54.9 million 60-kg bags of beans in the 2012/13 crop, which endured overly dry weather through its development. Cocoa also traded higher in modest business. July cocoa futures added $31, or 1.5 percent, to end at $2,094 per tonne. Gentile said low prices across the soft commodity complex have drawn some consumer interest. "At these prices, there is demand for all three commodities," he said. The macro economic outlook will continue casting a shadow over world financial markets going forward, analysts said. "The whole macro situation doesn't look good," Gentile said.