Soft commodities surge

Sugar, arabica coffee and US cocoa futures surged on Monday, as hopes grew for an agreement to resolve Europe's debt crisis. Raw sugar futures rose and consolidated below last week's one-month high, supported by a weaker dollar and strength in outside markets, including stocks, grains and oil.
"The sugar market saw a strong recovery as outside market forces shifted from bearish to bullish with a strong recovery on equities and a bounce in some key commodities," said Kamal Jain, managing director of Kamal Jain Trading Services, a sugar brokerage based in western Maharashtra state.
Progress in resolving the eurozone debt crisis boosted optimism in commodities. Many investors believe the EU "will come to some sort of agreement" on the issue, said Mike McDougall, vice president for brokerage Newedge USA. Several other factors boosted sugar, including uncertainty about how much India will export, off-take by China and questions about how much cane sustained flood damage in No 2 exporter Thailand.
Another factor that bears watching is if a tropical storm in the Caribbean slams into Central America and affects the cane crop there, McDougall said. Tropical Storm Rina will probably become a hurricane on Tuesday and dump rain on Central America and Mexico before hitting land in the region later this week, the US National Hurricane Center said.
ICE March raw sugar futures jumped 0.62 cent, or 2.3 percent, to settle at 27.10 cents per lb, while December white sugar futures on Liffe rose $19.50, or 2.8 percent, to close at $725.90 per tonne. Arabica coffee trading on ICE Futures US got an additional boost from concerns about the storm that is expected to bring heavy rains to Central America. This will follow two weeks of rainstorms there where coffee trees were felled and roads ruined, leaving farmers to count their losses.
"Central American rains won't affect the crop massively, it's probably more infrastructure," a European fund analyst said. "In Colombia there are question marks about the weather, with a mild La Nina developing, you may or may not see excess rain falling in the fourth quarter but if we do it's probably going to have a negative impact on the crop."
December arabica coffee futures on ICE gained 5.95 cents, or 2.4 percent, to finish at $2.5080 per lb, building on Friday's gains when the market posted the biggest jump in 16 months. Also, ICE certified arabica stocks continued to drop steeply, hitting the lowest since February 2000 at 1,324,120 bags by October 21. The stocks have fallen nearly 77,000 bags, or 5.5 percent, in the past five days.
"ICE deliverable coffee is the cheapest washed arabica in the world," said Jack Scoville, senior analyst with brokerage The Price Group in Chicago. In robusta coffee, the market climbed as dealers eyed the imminent harvest of top producer Vietnam's crop, where rain had caused initial delays.
"It's drying out in Vietnam now so the crop should start flowing soon," the fund analyst said. January robusta coffee on Liffe climbed $25, or 1.3 percent, to finish at $1,931 a tonne. Speculators trimmed a net long position in NYSE Liffe robusta coffee in the week to October 18 and reduced a net short in cocoa, exchange data showed on Monday.
Cocoa futures also climbed on the positive macroeconomic sentiment. Liffe second-month cocoa dipped to the lowest levels in more than two years early in the session, touching 1,670 pounds a tonne before reversing higher, with analysts noting bearish technical signals based on historical price charts.
"Monday's early declines breached the previous week's lows at 1,675 pounds, negative stochastics suggest more downside potential, possibly toward 1,629 pounds," said Brenda Sullivan, a technical analyst at Sucden. Liffe March cocoa climbed 14 pounds, or 0.8 percent, to finish at 1,690 pounds a tonne, while ICE December cocoa closed up $61, or 2.4 percent, to settle at $2,627 a tonne.