Arabica coffee futures pared steep gains in heavy volume on Friday, after concerns eased about the frost in Brazil's coffee belt that lifted the market nearly 5 percent earlier. ICE cocoa futures were firm but well off their steep highs, buoyed by the lower US dollar, while raw sugar fell in line with the weakness of other financial markets as macro worries over economic contagion offset bullish fundamentals, such as the small cane crop in No 1 producer/exporter Brazil.
Liffe September coffee closed up $17 at $2,062 a tonne. Minas Gerais produces about half of the coffee in the world's top grower, and the southern part of the state where the frost hit is one of the most densely planted areas. Any damage would impact the 2012/13 crop, dealers said. Frost struck at the heart of top grower Brazil's Minas Gerais coffee belt in the early hours of Friday co-operatives said, a freeze they said was certain to cut output next year though the extent of the damage was not yet known.
"A lot of the reaction was because of the unknown effect of the frost in Brazil. It was a little worse and unexpected than the previous one we had earlier this year," said Rodrigo Costa, vice-president of Institutional Sales for Newedge USA. "Now that people are realising the damage was not significant, I think some of the specs that bought that earlier are giving back some of their positions, that's why the market is coming off."
Raw sugar futures were slightly lower, trimming losses after risk-averse investor sentiment weighed on commodities in early trading. Country Hedging senior analyst Sterling Smith said sugar seems to enjoy support in the 27 cents area, basis October. Worries over the eurozone debt crisis and the gloomy outlook in the United States kept futures on the defensive despite fundamentals over Brazil's shrinking cane harvest and uncertainty over how much No 2 grower India will export of the sweetener.
"The fundamentals in sugar are mitigating and standing up (in part) to the macro pressure," said Smith, adding they are keeping the sugar market "afloat." Analysts also eyed large sugar crops expected from key producers including India. "In India production should rise. Europe's beet crop is going well, and most countries are going to have higher output with the possible exception of Italy," said Leonardo Bichara Rocha, a senior economist at the International Sugar Organisation (ISO).
October white sugar on Liffe rose $10.30, or 1.4 percent, to close at $730.10 per tonne. "We remain bearish sugar as we see a global surplus in 11/12, with the bulk of bullish Brazilian news likely behind us," Morgan Stanley said in a commodities note. Liffe September cocoa futures rose 19 pounds to finish at 1,852 pounds per tonne. Repeated upward revisions to West African 2010/11 cocoa production have recently kept a lid on prices, dealers said.
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