Raw sugar and arabica coffee futures on ICE closed at the lowest level in roughly 2-1/2 years on Monday, after reports from top producer Brazil emphasised plentiful supplies for both markets. Cocoa futures trading on both ICE Futures US and Liffe eased, while the premium of the spot contract in London grew.
Raw sugar extended its losses after Brazil's industry association Unica said its cane, sugar and ethanol production surged in the second half of November in its main centre-south cane belt after dry weather helped ensure smooth crushing. Total sugar production for the season reached 32.9 million tonnes, compared to last year's output of 31.1 million tonnes as of December 1, Unica said in its bi-weekly report.
March raw sugar futures on ICE settled down 0.45 cent, or 2.3 percent, at 18.76 cents a lb, the spot contract's weakest finish since August 2010. The contract's intraday low of 18.72x cents, however, did not fall below last month's intraday low of 18.66 cents last month.
Total volume was heavy at more than 114,000 lots, nearly 20 percent higher than the 250-day average, preliminary Thomson Reuters data showed. "We've seen the March/May spread and the May/July spread weaken over the last few sessions," said James Kirkup, director of sugar brokerage at ABN Amro Markets.
He noted that strong tail to Brazil's crop has probably boosted availability into March. "The market is rangebound but it seems a thorough test of the lows is in the offing," Nick Penney of Sucden Financial said in a market note. Speculators trimmed their net short position in raw sugar contracts on ICE Futures US in the week to December 4, US Commodity Futures Trading Commission data showed on Friday. March white sugar on Liffe fell $9.50, or 1.8 percent, to close at $506.00 per tonne.
Arabica futures on ICE also sank, after an exporter in top grower Brazil forecast a huge 2013/14 coffee crop and the move lower triggered automatic sell orders, dealers said. Brazilian coffee exporter Terra Forte said on Monday it expected next year's 2013/14 crop to produce 53.4 million 60-kg bags of coffee, 2 percent more than its estimate for this year's crop despite a cyclical dip that would normally cut production.
March arabica coffee futures sank 6.85 cents, or 4.4 percent, to settle at $1.4700 per lb, the second position's weakest finish since June 2010. The contract gave back most the gains from all of last week, when it rebounded from a 2-1/2-year intraday low at $1.4635 per lb. "The reversal last week was a good signal but too many got long on it and not enough reward, so it was time to get out," said one US dealer, referring to some long-liquidation that weighed on the market.
"Disappointed longs are once again bottom picking coffee and get no strong rally, so they dump." Speculators trimmed their net short position in arabica futures and options slightly last week, although it remains large and down only 8 percent from the nearly 36,000 lots they held a few weeks prior, the highest since records were made available in 2006. Long-term, however, Shawn Hackett of Hackett Financial Advisors in Florida is bullish.
"The technical picture on coffee is extremely bullish," Hackett said in a note, adding prices had come down to a long-term bull uptrend line that has held for over a decade. March robusta coffee futures closed down $24, or 1.3 percent, at $1,880 a tonne. Cocoa futures on Liffe were lower with the flow of cocoa from West Africa picking up after a slow start linked to dry weather, which delayed early crop growth.
Cocoa arrivals at ports in top grower Ivory Coast reached around 425,000 tonnes by December 9 since the start of the season in October, exporters estimated on Monday, compared with 509,852 tonnes in the same period of the previous season. "We've had some reasonably good rains in November which, if it carries on in December, might bode well for a good tail," one London broker said.
Dealers were also keeping a close watch on the aftermath of a presidential election in number two cocoa producer Ghana. March cocoa on Liffe closed down 26 pounds, or 1.7 percent. to settle at 1,520 pounds a tonne, while March cocoa on ICE dipped $33, or 1.4 percent, to settle at $2,379 a tonne. The premium for the December contract on Liffe climbed to around 75 pounds, the highest since August 2010, after closing at 74 pounds on Friday. The open interest on the Liffe December contract, which expires on Wednesday, fell 4,999 lots to 12,535 lots, as of Friday.
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