London white sugar futures hit a 4-1/2 month high on Monday and robusta coffee climbed to a 5-week peak as investment funds turned their attention to soft commodity markets as equities and oil prices tumbled.
"All the commodities are firm while the stock market and oil are giving up ground," one dealer said, adding investment funds were buying a wide range of agricultural commodities with US wheat soaring to a record high on Monday. March white sugar ended up $5.20 at $307.20 a tonne after peaking at $307.30, its highest level for the front month since August 1.
Sugar prices suffered a prolonged downtrend after peaking in mid-2006 weighed by large global supply surpluses but slowly began to recover after slipping to a 26-month low of $257.90, basis front month, on September 14. "Sugar has been lagging behind other commodities. The funds have seen it is good value and have jumped on the bandwagon," one dealer said.
Dealers said sugar and coffee also benefited from a re-weighting of fund indices ahead of the end of the year. "Funds and specs are buying. They have bought a tremendous amount," one sugar trader said. Dealers said news that China's sugar output could fall significantly after the worst drought in 50 years was also supportive.
The rise in sugar and robusta coffee prices did not appear to be fully justified based on market fundamentals with both commodities in surplus, dealers said. "Warehouses are jam-packed. The sugar is there," one dealer said. Robusta coffee prices ended just below a five-week high with March finishing at $1,894, up $34 after peaking at $1,914 in early afternoon trading.
The market had rebounded strongly from a low of $1,736, basis March, early this month. "The move is very much technical and fundamentals just aren't backing it up," CoffeeNetwork analyst Andrea Thompson said, adding Vietnamese exports of robustas are believed to have picked up significantly in recent weeks. "The way world robusta coffee crops are shaping up at the minute it looks like there is going to be an excess of robusta production," she added.
Cocoa prices also ended higher with the market hovering just below last week's 4-1/2 month high. March ended 8 pounds higher at 1,064 pounds a tonne. The contract peaked at 1,073 pounds on Thursday, its highest level since July 26.
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