Raw sugar futures on ICE jumped over 4 percent on Monday and were on track for their biggest one-day gain in almost two months as technical buying and speculative short-covering offset fears about a growing global surplus. Arabica coffee and cocoa futures on ICE were also firm, supported by the weaker dollar and gains in equities and commodities markets.
Sugar rallied after Friday's Commitments of Traders report revealed that funds last week held their largest net short position since 2007, when ICE records began. Shorts raced for cover as the data kindled fears that prices may have reached a bottom after a massive wave of recent short selling.
"The market's been extremely oversold. Technically the market was putting in a bottom from around 18.50 and 18.80 cents and formed a base that led to short-covering," said softs analyst Boyd Cruel of Vision Financial Markets in Chicago. March sugar futures on ICE were up 0.75 cent, or 3.92 percent, at 19.9 cents a lb at 12:50 pm EST (1750 GMT), after peaking at 20.0, their highest since October 23. A close at current levels would be the biggest one-day gain since October 1. Sweetener prices have risen 7 percent since November 9 when they hit their lowest level since August 2010.
Trading volumes were heavy with 107,884 lots traded by midday in New York, almost 50 percent above the 30-day average. With the fundamentals showing no signs of improving and analysts forecasting a bumper crop from Brazil, some traders saw the gains as little more than a short-term correction.
Dealers say the higher prices and weak real could prompt some Brazilian producers to sell into the gains, potentially capping further advances. But others say there's still room to go higher. A close above 19.70 cents would likely spur further fund buying. "We've had trade and fund buying and it has led to a breakout of last week's high of 19.64 cents. I think, if we can settle above 19.70, it should provide further fund buying tomorrow," said James Kirkup, director of sugar brokerage at ABN Amro Markets.
March white sugar on Liffe rose $16.20, or 3.18 percent, to $525.50 per tonne. Speculators have made their most bearish bets on coffee and raw sugar futures and options contracts on ICE Futures US in over five years amid signs of abundant supplies, US Commodity Futures Trading Commission (CFTC) data showed on Friday. The data also triggered short-covering in New York coffee even though there was no change in expectations of better harvesting for 2013.
After piercing a 14-day moving average, March arabica coffee futures rose 3.85 cent, or 2.52 percent, to $1.5635 per lb, extending a correction after the contract sank to $1.4945 on Thursday, the lowest level for the second month since June 2010. Meanwhile, in the London-based Liffe robusta coffee market, speculators reduced net long positions in robusta coffee in the week to November 13, exchange data showed on Monday.
January robusta coffee futures were off $1, or 0.05 percent, at $1,900 a tonne, just above Thursday's low of $1,891, the lowest level for the second month since February 8. Cocoa futures edged higher as dealers monitored the latest data from Ghana where initial 2012/13 arrivals have been slower than the previous year, when there were problems with arrivals data exceeding actual cocoa inventory.
ICE March cocoa settled up $23, or 0.96 percent, at $2,421 per tonne, swept higher by the broader market gains. Concerns have waned that the political instability in Ivory Coast, the largest grower of cocoa beans, could disrupt exports. Benchmark Liffe March cocoa futures settled up 3 pounds, or 0.19 percent, at 1,556 pounds per tonne.
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