London coffee, cocoa and white sugar futures fell on Friday, as escalating problems in the high-risk US subprime mortgage sector squeezed global liquidity. Robusta coffee dealers said coffee was feeling the pinch from the wider financial markets meltdown.
"The market had been propped up by fund-style buying. But managed money buying is absent today," a senior coffee futures trader said, noting that investment funds had bought robustas in recent days, but buying had now dried up.
Robustas were sharply down in the afternoon, with the benchmark November contract trimming earlier losses to close down $26 at $1,817 in moderate volume of 8,760 lots. Traders saw November break below support at $1,800 to touch $1,796. The next key support level is $1,740, with resistance seen at $1,860, potentially rising to $1,900 and then $1,930.
Another senior robusta futures trader said, "You may find a little less bullying by the funds." Problems in the high-risk US subprime mortgages sector have threatened to trigger a seizure in the financial system and damage world growth.
Some soft commodity traders voiced concerns that funds might pump less liquidity into their markets. However, Rodolphe Roche, a commodity fund manager at Schroders in London, said sugar's malaise was more likely due to a huge glut, driven by big output in Brazil, India, Thailand and China, and a large harvest in Russia, the leading importer.
Benchmark October white sugar futures fell on fund and speculative selling to a fresh 21-month low of $277.40 and later clawed back to close at $281.00, down $1.00 or 0.35 percent, in heavy volume of 9,046 lots.
"The funds have been selling heavily," said one senior sugar futures trader, noting active arbitrage and a narrowing spread between white and raw sugar values to around $65 between the London and New York October contracts. Dealers said refining margins were being squeezed by the drop white sugar futures, raising the possibility that some refineries might decide to operate below full capacity.
London cocoa futures eased to three-month lows, with December falling to a trough of 956 pounds, just above the May 1 2007 low of 947 pounds, and recovered late in the session. December closed at 976 pounds, up 3. Dealers said expectations of good 2007/08 Ivory Coast main crop output was dragging on futures prices. Some traders see cocoa futures falling further. Ivory Coast is the world's top cocoa producer.
The continued fall in London cocoa futures triggered strong European industry buying of cocoa beans and butter this week, traders said on Friday. Farmgate prices for cocoa in Ivory Coast mostly fell between July 30 and August 5, data from the Coffee and Cocoa Bourse (BCC) showed on Thursday, with poor quality, damp beans in some places due to regular rainfall.
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