Cocoa futures tumbled to their lowest in more than two years on Monday on new-month selling amid widespread concerns about the European banking sector, while arabica slid to its lowest in 2011. Sugar futures fell but later pared losses in line with the recovery seen in some other commodity markets such as crude oil, which was lower but off morning lows.
World stocks, oil and the euro slid after Athens admitted it will miss deficit targets this year, making a Greek debt default look more likely. "I think the main cause behind the sharp (downward) correction is news about Greece, which confirms the fact we are headed toward a very difficult economic situation. Global commodity markets are pricing all the fears," Natixis analyst Lysu Paez Cortez said. Cocoa futures closed at their lowest in more than two years on heavy volume as the economic woes added further fuel to a downward trend driven by abundant global supplies, due in part to a record surplus in 2010/11.
"We've had exceptional production in West Africa and quite elevated ending stocks to use ratio," Paez Cortez said. Ivory Coast's plantations could churn out around 350,000 tonnes of cocoa by the end of November, on a par with the start of last year's record crop, exporters said.
December cocoa on ICE closed down $33 at $2,575 a tonne, the lowest settlement for the front month since July 2009. Total open interest on September 30 was the highest in 3-2/3 years. Momentum sellers, short selling by system funds as an influx of new-month money comes in and a much stronger US dollar weighed on the market, one veteran cocoa dealer said.
Cocoa futures on Liffe also fell with March down 11 pounds to end at 1,717 pounds a tonne, the weakest close for the second position since July 2009. Coffee futures also dropped, with the arabica market the lowest since December 2010 as forecast for rain in top grower Brazil, which is expected to trigger the much-anticipated flowering on coffee trees there, added pressure, dealers said. Rains will reach Brazil's south-eastern coffee belt early this week and should be sufficient to prompt trees to flower for the next year's crop, forecaster Somar said.
December arabica coffee futures on ICE sank 5.45 cents, or 2.4 percent, to close at $2.2345 per lb, after earlier dipping to $2.1980, the lowest settlement for the front month since December 12, 2010. January robusta coffee on Liffe slid $51, or 2.5 percent, to close at $1,962 a tonne. NYSE Liffe's first Commitments of Traders report showed speculators held a net long position on robusta coffee futures of 8,954 lots, as of September 27, while last week's US Commodity Futures Trading Commission data showed speculators returned to a net short position on ICE.
SUGAR MAY TEST SUPPORT "It's a macro thing," said The Price Group senior analyst Jack Scoville when asked about the early weakness of sugar and other commodities in the softs complex. Cash activity in sugar seems slow at this time, with most consumers content to buy the material on a hand-to-mouth basis, brokers said. Raw sugar futures on ICE fell with March dropped 0.44 cent, or 1.7 percent, to end at 24.85 cents a lb after earlier dipping to 24.41 cents.
"We seem to have a rapidly deteriorating macro background coupled with less than favourable (for the bulls) sugar technicals and fundamentals," Thomas Kujawa of Sucden Financial said in a market note. "It seems we are going to retest the support around 24 cents in the near term."
Paez Cortez said there should be strong support around 20 to 21 cents a lb with a drop below that range likely to lead Brazilian producers to switch to using more cane for ethanol and less for sugar. December white sugar futures on Liffe fell $10.70, or 1.6 percent, to settle at $652.60 a tonne.