LONDON: Cocoa futures rallied by more than 5 percent on Tuesday as dealers noted short covering activity, while ICE sugar hovered around a two-month high, supported by concerns about delays to Brazil's harvest.
Coffee consolidated after falling more than 3 percent on Monday as investors liquidated long positions. March cocoa futures on ICE traded up $124 or 5.5 percent at $2,393 a tonne at 1544 GMT, after hitting a two-month high of $2,400 earlier in the session.
"There are major shorts around and when these funds decide to short cover who is going to be selling to them?," said a London-based dealer.
"People are sitting short and caught at the moment." Liffe March cocoa futures were up 81 pounds or 5.5 percent at 1,564 pounds a tonne.
Demand for cocoa, the key ingredient in chocolate, is widely expected to surpass supply in the current crop year, helping prices to recover some of the ground lost last year, a Reuters poll of 20 analysts and dealers showed. The poll forecast a global 2011/12 cocoa deficit of 100,000 tonnes.
Dealers watched the development of Ivory Coast's mid crop, where light, patchy rains fell in the eastern and southern cocoa growing regions last week, raising hopes for output, while drought and wind continued in most other areas of the West African country.
"The risk of damage has receded, because the weather has improved. There's been much needed rains over the past few days, and I'm not aware of anyone who's seen a real deterioration in mid crop prospects," said a European commodities fund analyst.
Ivory Coast continued to push ahead with its cocoa sector reforms, appointing former agriculture minister Lambert Kouassi Konan as chairman of the new cocoa marketing and stabilisation body, the CCC.
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