London cocoa, sugar and coffee futures surged on Wednesday as funds, partly encouraged by a soaring oil market, injected fresh money as prices hit buy-stops, traders said. The benchmark July cocoa contract hit a two-week high of 1,394 pounds a tonne before easing back and settling at 1,377 pounds, up 45 or 3.4 percent, in brisk volume of 5,108 lots.
The surge in cocoa futures was mainly due to investment fund buying after a number of buy stops were hit, against a backdrop of a lack of origin sales in a tight market characterised by robust demand and limited supplies, traders said.
Cocoa prices were also boosted by an all-time low pound against the euro. May white sugar surged to a three-week peak of $356.00 a tonne, before edging back to settle at $354.30 a tonne, up $14.30 or 4.2 percent.
"It is more speculation than anything," Jonathan Boyden, head of the sugar unit at Ambrian Capital, said, stressing that prices in most softs commodities had hit buy-stops. "Oil prices are surging because the US (government) oil report is very bullish. Oil prices surged and they are taking commodities along," he added.
Some traders see a link between sugar and oil prices because of the use of Brazilian cane to manufacture ethanol biofuel. Surging crude oil prices increase the justification of investors to plough money into ethanol production. Oil jumped to more than $111 a barrel on Wednesday, within sight of a record high, after a US government report showed a surprise drop in inventories in the world's top fuel consumer.
Following the mood, London coffee futures, which spent most of the morning in negative territory, hitting a two-month low of $2,180, turned around to settle some 2.5 percent higher with July up $55 to $2,298 a tonne. "It followed the others, as well as New York. There was also some bargain hunting," a trader said. The ICE May arabica futures contract rose 3.05 cents, or 2.3 percent, to $1.3625 per lb after fund buying hit buy stops.