London coffee, cocoa and sugar plummet

London coffee, cocoa and sugar futures fell sharply as the dollar jumped on Friday as funds took profits from a surge to one-month highs this week. "We're seeing a pullback across the (commodities) space," said fund manager Matthew Sena of US-based Castlestone Management, which manages around $1 billion in assets.
All three soft commodity markets had climbed to the highest levels in about a month on Thursday but fell back on Friday as the dollar rebounded, buoyed by better-than-expected results from the largest US bank Citigroup Inc.
"Across the commodities board, everything is down today. There is certainly a correlation with the dollar and funds are taking profits," said analyst Ian Dixon of Tate & Lyle.
Dealers and fund managers said the fundamental picture looked constructive for soft commodities, but investors used the jump in the dollar as an opportunity to take profits. A rising dollar makes dollar-denominated commodities more expensive for holders of other currencies. London July robusta coffee futures settled down $82 at $2,299 tonne after earlier touching a low of $2,266.
The drop in softs commodities was more accentuated than in other commodity markets because coffee, cocoa and sugar are less liquid asset classes, dealers said. "The down moves (in softs) tend to be more dramatic because of the structure of the market," one trader said.
London July cocoa futures settled down 24 pounds at 1,456 pounds a tonne but did manage to trim losses in late trade and earlier dipping to a low of 1,410 pounds. Dealers said the backdrop for the cocoa market was supportive due to robust demand and tight supplies ahead of the West African mid crops. White sugar prices also pared losses in late trade, boosted partly by a rise in crude oil prices to a fresh record high.
London August white sugar futures finished down $1.80 at $367.20 per tonne, well above the day's low of $359.10. "We have a relatively strong market and the medium to long-term outlook for the market is relatively positive. There is an ethanol story, the potential for money inflows, there's the hedge against dollar inflation," a sugar trader said. "All those stories are in the background and there is the prospect of a tighter supply and demand picture for 2009."
Sugar prices can be correlated to the oil market as the commodity is used to make biofuel ethanol in Brazil and traders said trends in energy markets would be crucial.
"All we talk about is what crude oil is doing, what the dollar is doing, what copper is doing, what corn is doing, what's ethanol doing, what are the funds doing," one sugar trader said. "The headline commodity is crude oil. That seems to be the cheerleader, or the conductor."