ICE arabica coffee and raw sugar futures rose on Monday as cold weather and rains in Brazil prompted short covering in markets that touched multi-year lows in the past month on expectations of big supplies in the world's top producer. Cocoa futures fell, consolidating after recent gains.
September arabica coffee on ICE Futures US rose 2.6 cents, or 2.1 percent, to settle at $1.2530 per lb as prices moved further from a four-year low, basis the second month, of $1.1710 touched on June 20 amid prospects of huge off-year production in Brazil. An intense cold snap will bring frost to some farms in Brazil's southernmost coffee producing state of Parana on Wednesday morning, sparing the main growing areas of the world's largest exporter of the crop, local weather forecasters Somar said on Monday.
ICE September arabica coffee futures gained almost 3 percent last week, the biggest one-week rally since early May and prices touched $1.34 per lb, the strongest level in almost two months.
"The colder temperatures have been the driving force for the market, but most people are suspecting there may be limited damage, and that is limiting the recovery here," said Stephen Platt, an analyst at futures brokerage Archer Financial Services. Still, the risk premium from cold weather and rains prompted more short covering by speculators, who hold bearish positions in both raw sugar and arabica coffee futures and options.
"With both markets heavily short in terms of speculative positions, we expect a brief short-covering rally as traders price in this weather risk," Kona Haque, an analyst with Macquarie, said in a market note. Liffe September robusta coffee finished down $24, or 1.2 percent, at $1,944 a tonne, consolidating after a recent rally that lifted second-month prices more than 15 percent from mid-June to Friday. ICE raw sugar futures advanced as the rains threatened to downgrade sugarcane production prospects. October raw sugar on ICE closed up 0.11 cents, or 0.7 percent, at 16.40 cents per lb as the market pulled further from last week's tthree-year low of 15.93 cents It was the front month's fourth straight daily gain, its longest rally since September. "Heavy rains over the weekend stalled cane harvesting in the centre-south belt and showers over the next few days will keep harvesting slow," US-based MDA Weather Services said in a sugar report.
October white sugar on Liffe gained $4.20, or 0.9 percent, to settle at $472.0 a tonne. ICE September cocoa futures slipped $16, or 0.7 percent, to settle at $2,348 a tonne in a modest setback following the recent run-up in prices. "We're getting a little bit of a correction, because the market is overbought," said Spencer Patton, founder and chief investment officer of Steel Vine Investment in Chicago. The front-month contract ran into technical resistance after climbing to a more than one-month high of $2,377 on Friday amid a string of supportive news and data.
The North American cocoa grind, a demand indicator, rose the most in three years and more than expected in the second quarter. Output in top producer Ivory Coast is expected to fall, and that the country is further along in forward sales than many had expected. December cocoa in London closed down 17 pounds, or 1.1 percent, at 1,582 pounds a tonne.
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