Arabica coffee futures on ICE rose to the highest levels in more than seven months on Tuesday boosted by fund buying while sugar prices eased as producer selling emerged following this week's run-up, dealers said.
Cocoa futures on ICE rose, although prices in London remained little changed, weighed by a stronger pound. July arabica futures on ICE stood 2.15 cent firmer at $1.3155 at 1435 GMT after touching $1.3205, the highest level for the front month since late September 2008.
Dealers said strong equity markets and a weaker dollar had spurred the initial advance in prices on Tuesday while there continued to be a reluctance to take short positions ahead of the June/July frost season in top producer Brazil. "We're coming up to frost season. No one is going to sell it short in any size without paying up for calls," said Lars Steffensen, managing director of UK-based commodities fund Ebullio Capital Management.
Steffensen said arabica prices may fall back to around $1.15 per lb in August or September in the absence of any frost damage to crops. Weather patterns likely to promote cold snaps in Brazil's coffee areas are in place this year but, while they raise the chance of frost, there is no specific threat yet of a damaging chill, World Weather Inc said on Monday.
Arabica prices have also been boosted by reduced supplies from Colombia. Premiums for high quality Colombian beans have risen sharply in the last few weeks. "I think it (the shortage of Colombian beans) has been well incorporated into the price," one coffee dealer said. July robusta coffee in London rose $4 to $1,533 a tonne. Sugar prices turned lower with the market again running into resistance around 16 cents a lb, basis July raws on ICE.
July raws peaked at 15.91 cents before turning lower and stood 0.05 cents lower at 15.56 cents at 1435 GMT. Dealers said the sugar market had also received an early boost from the crude oil market and came under pressure as gains in energy markets were eroded. August whites in London stood $1.80 higher at $438.70 per tonne but was well below the day's peak of $444.10.
Cocoa futures on ICE were swept higher by gains in other markets and a weaker dollar with July up $27 to $2,324 a tonne. The strength of sterling, however, kept a lid on prices in London with September two pounds lower at 1,589 pounds a tonne. The contract fell to 1,582 pounds on Monday, a five-month low for the second position.
"Confidence in cocoa appears to be ebbing at the moment as weak grindings data from the US, Europe and Asia combined with signs of improvement in the Ivory Coast mid-crop have weighed on prices," Barclays Capital said in a report on Tuesday. Barclays Capital said a pick-up in grindings later this year as processors and confectioners complete their destocking should boost prices, forecasting front-month ICE prices to average $2,600 a tonne in the second half of this year.
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