Funds and speculators piled into sugar, coffee and cocoa on Tuesday as investors re-weighted their holdings of commodity indices, sending white sugar futures to seven-month highs and cocoa to five-month peaks.
White sugar futures tracked ICE electronic raw sugar futures higher and ran into producer selling, dealers said. The whites-over-raws premium between the March contracts in London and New York narrowed by about $2 to $75 per tonne.
March closed up 80 cents at $326.50 per tonne, having earlier touched a seven-month peak of $334.00. "Whites are following the raws. A re-weighting of commodity indices is under way," a trader said, referring to the rebalancing of the DJ-AIG and S&P GSCI commodity indices.
Raw sugar futures vaulted to their highest levels in one year on Tuesday as investors in commodities indices bought the sweetener and extended the market's early-year rally. Sugar, often ignored by speculators and investment funds in 2007, has now joined a sizzling rally that has propelled almost all commodities on a bull-run this year.
Dry weather in Brazil's centre-south is giving sugar and ethanol mills extra time to finish the crushing season, which normally ends in December, industry officials said Tuesday. India, the world's second-biggest sugar producer, has exported 354,000 tonnes of the sweetener in the first three months of the season that began in October, a government source said on Tuesday.
Fund buying also drove up robusta coffee futures, dealers said. "The funds are in the mood to add to many commodities with coffee being one of them," one trader said.
March surged to a contract high of $1,981 - a two-month peak on a second-month continuation basis - before finishing at $1,966, up $15. Brazil's 2008/2009 coffee crop is forecast at 41.3 million to 44.2 million 60-kg bags, up sharply from the 33.74 million bags in 2007/08, the agriculture ministry's crop supply department Conab said on Tuesday.
Independent analysts Safras e Mercado see the new coffee crop at 47.6 million to 49.9 million bags. London cocoa futures rose to their highest levels in more than five months on follow-through buying after a strong close on Monday as investment funds continued to build long positions in both London and New York.
May closed up 10 pounds to 1,129 pounds, having touched a peak of 1,138 pounds. "The impetus is still towards the upside," one trader said. Concern about dry weather in top producer Ivory Coast is also contributing to the market's advance, dealers said.
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