Raw sugar futures climbed on Monday due to rising premiums for front-month October, consumer purchases and follow-through investor buying. Arabica coffee prices rebounded after last week's sharp fall, while cocoa futures eased slightly. New York's October raw sugar contract gained 0.52 cent, over 2 percent, to finish at 29.57 cents a lb. London's December white sugar contract jumped $18.80, or 2.67percent, to close at $723.60 a tonne.
Dealers said the recent sharp rise in the October/March raw sugar premium may have forced some trade houses to cover short positions taken in anticipation that the spread could weaken when funds roll their net long into March. "We are thinking ... producers lifted hedges as they are a bit short on their physical obligations," said Bill Raffety, an analyst for commodities brokerage Penson Futures.
Brokers Sucden Financial said in a market note: "The October-March spread in New York is center stage at the moment ... It seems the consensus view is some areas of the trade are caught trying to pre-empt the fund roll." October's premium to March rose to a peak of more than 2.00 cents a lb, from as low as 0.57 cent at one stage last week. The front month expires at the end of this month.
Raffety added that some follow-through investment fund buying occurred with automatic buy order stops "triggered at 29.10-29.30 (cents/lb) and above as it moved higher". Arabica coffee futures climbed in an inside day, after slumping 5 percent last Friday - their biggest one-day drop in more than a year.
"It's slowly trending higher but just really choppy. You don't have any real strong efforts to bring it down," Raffety said. "It's still fundamentally a bullish case (but) producers who have any stocks are holding back for higher prices." New York's December arabica coffee futures gained 0.95 cent to finish at $2.7095 per lb. London's November robusta futures added $19 to end at $2,190 a tonne.
"The fundamental news on coffee is not very bearish because Colombia has reduced its production forecast and there are worries about Brazil's next crop," said Michaela Kuhl, analyst at Commerzbank. "Everybody is looking forward to a huge harvest next year in Brazil but dry weather has been a bit of a concern." Brazil's coffee-flowering season starts in September and needs rainfall for the development of the crop.
US cocoa futures extended losses and slipped to a one-month low, weighed down by a weak pound against the dollar and a large global surplus in the current 2010/11 crop year, dealers said. "I think the fundamentals are finally coming to weigh on this thing. There's ample supply and it's finally coming into play," Raffety said. December futures on ICE fell $10 to end at $2,863 a tonne, the lowest settlement for the second position since in 8 months. London's December cocoa futures shed 9 pounds to settle at 1,847 pounds a tonne. The widening of spreads also added a bearish tone, with the December/March spread stretching steadily to a $41 discount on September 9 from a $27 discount on September 2.
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