A weak dollar inspired a rally on Thursday in soft commodity markets and some analysts said volatile dealings in cocoa, coffee and sugar futures will continue in the weeks ahead. "This is definitely a dollar move and (some) momentum play," said Larry Young, senior trader of brokerage house Infinity Futures in Chicago.
"We haven't entered yet into any of the weather issues (in all the soft markets) and that's a wild card." The September cocoa contract rocketed up $45 Thursday to close at $3,167 a tonne, the loftiest finish since February 1980 for the second contract on a monthly continuation chart.
The London September cocoa contract climbed 12 pounds to end Thursday at 1,685 pounds a tonne. The decision by the US Federal Reserve on Wednesday to leave interest rates unchanged prompted investors spooked by weak returns in equities and other asset classes to run back into the commodity sector.
Gold and base metals jumped. Fresh rains in the flood-socked US Midwest propelled corn futures to a fresh record. Soft commodities followed suit.
Cocoa was also aided by lingering fears that output may suffer in the top three world cocoa growers - Ivory Coast, Ghana and Indonesia. "We are responding, really, to the Fed," said James Kirkup, senior sugar broker with Fortis Commodity Derivatives.
Sugar futures romped higher and coffee hit a fresh 3-1/2 month high, with an open-ended truckers' strike in Brazil providing a bullish impetus to the sugar market. Coffee dealers in New York said the strike had some effect, but, overall, light volume allowed the market to easily make a big move upward.
"Lack of selling has been the real reason for the move higher," one dealer said. Many coffee producers retreated to the sidelines and waited for the market to climb even higher, traders said. "It looks toppy to me. There's no weather behind this thing. I'm not impressed with the volume," said Bauer.
The September arabica coffee futures contract went up 3.30 cents to end at $1.5365 per lb, the loftiest settlement since March 13. The London September robusta futures jumped $56 to finish at $2,442 a tonne. "Robustas haven't been trading on coffee fundamentals. It's technically driven," Andrea Thompson, an analyst with CoffeeNetwork, said, referring to the fund and investor buying in the market.
Sugar prices tracked the rally in commodities, but New York raw futures seemed to be capped by profit-taking near the 13 cents area in the key October raw sugar contract. Sugar's steadiness has been bolstered by the effect recent rains in leading producer and exporter Brazil may have on yields and output in 2008/09.
Output is seen falling in major producer India, consumer demand is rising, more cane may go into manufacturing the alternate fuel ethanol, and investment funds are more favourably disposed to sugar as an asset class.