Soft commodity futures hit fresh peaks on Wednesday with investment funds and speculators piling into coffee, cocoa and sugar as they shifted money out of poorly performing alternative assets, dealers and fund managers said.
Robusta coffee touched a 10-3/4-year peak, cocoa a 5-year high and white sugar a 15-month top as part of a broad-based advance in commodity markets. The surge in soft commodities was part of a wider rally in which gold and oil prices powered to record highs as investors bought heavily after the dollar slumped on worries about the deteriorating health of the US economy.
"There is no limit to this until people see better assets elsewhere - or a bottom to the stock market - and that doesn't seem to be happening yet," said Lars Steffensen, managing director of the commodity trading group at Ebullio Capital Management in London.
"People want to make their numbers look good for month's end," he added. "A massive volume of investment is coming in." Investment funds and speculators have piled into soft commodities since late 2007, hunting stronger returns due to disappointing alternative assets, notably equities hard hit by fears over a global economic slowdown and the credit crunch.
Andrea Thompson, analyst with CoffeeNetwork, said, "From a fund point of view, they are looking at the entire soft commodity complex, and taking a much longer term view." She added, "There is no sign that this support is going to abate to any degree. I don't think anyone is willing to rule out further gains." Thompson said the next key target for the benchmark second-month May contract was $2,800/2,900 a tonne.
So far in 2008, robusta coffee futures have surged 38 percent, London cocoa futures 30 percent, and white sugar 22 percent, driven primarily by hefty investment from funds. London benchmark May robustas hit a 10-3/4-year high of $2,645 a tonne, London May cocoa touched a 5-year peak of 1,384 pounds a tonne, and May white sugar futures hit a 15-month high of $389.00 a tonne on Wednesday.
May robustas settled at $2,640 per tonne, up $95 or 3.5 percent, May cocoa finished up 33 pounds or 2.3 percent to 1,377 pounds, and May white sugar closed at $384.20, up $2.5 or 0.8 percent, in brisk volumes. Gains have been established against a backdrop of tight supplies and growing demand for robusta coffee and cocoa while the sugar market is moving closer into balance after a period of massive global surpluses.
Farmers in key producing countries such as top robusta producer Vietnam have also responded to the bullish trend by holding back supplies in the hope of achieving even higher prices, leaving the markets with few natural sellers. "There is not much selling of robustas from Vietnam," one dealer said. Vietnam estimated on Wednesday its coffee exports this month would be 6.8 percent lower than last February at 110,000 tonnes, or 1.83 million bags.