Cocoa climbs as shorts take cover

Cocoa futures on ICE climbed to five-week highs on Tuesday, bolstered by short-covering as the markets reacted to technically oversold conditions, while sterling weakness further buoyed prices in London. Sugar and arabica coffee prices retreated slightly, hovering just above recent multi-month lows. May London cocoa settled up 37 pounds, or 2.2 percent, at 1,696 pounds per tonne, the highest in five weeks for the second position.
Sterling fell to an eight-week low against the dollar on fears of a prolonged bout of political jousting over the terms of Britain's exit from the European Union. Dealers said the rebound in prices that started on Friday had been driven mainly by technical buy signals, with funds beginning to cover huge net short positions.
"The specs sold way too heavy into the decline and are now in the process of being stopped out of their newly established shorts," one trader said. Total open interest in New York futures fell for the past two sessions, from Thursday's record open interest of 297,924 contracts, as traders said market participants covered their short positions, causing prices to rebound. Ivory Coast cocoa exporters said they expect port arrivals to fall and remain at a low level until May or June because of poor bean quality.
"I still don't feel the market is showing us conviction that this is a reversal; $2,065 then $2,080 need to be broken in the May ICE cocoa. If the quality is that bad, $2,200 needs to be tested," said Peter Mooses, senior market strategist for RJO Futures in Chicago.
May New York cocoa futures settled up $41, or 2 percent, at $2,058 per tonne, after rising to $2,065, the highest since February 6. May raw sugar futures settled down 0.02 cent, or 0.1 percent, at 18.16 cents per lb. The market is engaged in the "battle of 18 cents," with momentum investors appearing to have decided to sell sugar, said Commonwealth Bank of Australia analyst Tobin Gorey.
Traders shrugged off news from India, the world's biggest sugar consumer, where Food Minister Ram Vilas Paswan said the country had no plan to cut import duty on the sweetener, at least in the near term. May white sugar settled down 50 cents, or 0.1 percent, at $512.60 a tonne. May arabica closed down 1.1 cent, or 0.8 percent, at $1.4125 per lb. May robusta ended up $5, or 0.2 percent, at $2,169 a tonne.