Coffee futures on ICE jumped around 7 percent in heavy volume to their highest in a year on Tuesday, with dryness in top grower Brazil galvanising investors to increase holdings of the commodity. Raw sugar on ICE Futures US also surged in hefty dealings after Brazil's industry association, Unica, said on Monday that the country's 2014/15 cane crop will suffer a major hit. US softs markets were closed on Monday for a holiday.
Liffe robusta touched a six-month high, while cocoa markets were little changed. May arabica coffee futures on ICE had jumped 9.85 cents, or 6.9 percent, to $1.5215 per lb by 12:38 pm EST (1738 GMT), having earlier reached $1.5665, the highest since January 2013. The contract soared around 10 percent before most US traders were even at their desks, which would have been the biggest daily surge since November 2004, setting a bullish tone for the session. Arabica was the strongest performer by far on the Thomson Reuters/CoreCommodity CRB Index for the session as well as well as year-to-date.
One US trader said funds were both taking on new long positions and covering their shorts on the belief that Brazil will not get as much rain as it needs to recover from the drought. Producer selling was light compared with earlier this month. "I think we have a lot more upside," the US trader said. Total volume surged above 53,000 lots, already more than double the full day's average.
Dry conditions in Brazil have persisted to the extent that many now believe the country's production will be curbed, giving credence to deficit forecasts. Brazilian forecaster Somar said light rainfall will continue after three days of heavier rains broke a long period of drought, though rains will ease in some regions.
US-based meteorologist Commodity Weather Group reported that rainfall deficits will continue and it said it has low confidence in its 16-30 day forecast for near-normal to below-normal rain. After arabica coffee prices slid 65 percent within 2-1/2 years as rising global production resulted in surplus supplies, unfavourable weather in Brazil means there's finally potential for higher quality arabica coffee demand to outstrip supply, analysts said, noting the market is pricing in a deficit for 2014/15.
The market has soared 50 percent in 3-1/2 months, with the bulk of the rally spurred by concerns about crop-damaging drought in parts of top grower Brazil. The move spurred speculators to switch to a net long position for the first time since 2011. Kona Haque, head of agricultural commodities research at Macquarie Bank, said the dry weather conditions in December and January were unprecedented, making it difficult to assess the potential damage.
ROBUSTA FOLLOWS Liffe May robusta coffee rose $60, or 3.3 percent, to $1,878 a tonne, after earlier hitting $1,887, the highest level since August. Sugar dealers also eyed Brazil's weather after six weeks of hot, dry conditions across the main farm belt. ICE March raw sugar futures were 0.50 cents higher, or 3.2 percent, at 16.13 cents per lb. Total volume vaulted above 230,000 lots, already more than double the full day's average.
"The much-needed rain received in Brazil is a piece of good news, but it would not be able to save the damaged crop," said Vanessa Tan, an investment analyst at Phillip Futures. May white sugar futures on Liffe climbed $11.20, or 2.5 percent, to $455.40 per tonne. In cocoa, markets quietly held near 2-1/2 year highs as dealers monitored the tailing off of port arrivals in Ivory Coast. May cocoa on ICE settled down $8, or 0.3 percent, at $2,959 a tonne, after hitting a 2-1/2 year high of $2,985, while May cocoa on Liffe eased 6 pounds, or 0.3 percent, to close at 1,852 pounds a tonne.
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