Cocoa, sugar and coffee prices fell on Friday, weakened by a stronger dollar and the prospect that an economic slowdown could cut demand, dealers said. "I think we are digesting the possibility of demand erosion but assuming we don't go into a major recession I think demand will pick back up and the long-term bull market will continue," said Matthew Sena, a fund manager at Castlestone Management.
Cocoa showed the most significant decline the day after it was announced that US second quarter grinds had fallen a larger expected 15.89 percent. September cocoa in London fell 65 pounds or 4.3 percent to 1,447 pounds a tonne.
"People might spend a little bit less money on chocolate items," Sena said, adding the market also lacked any fresh bullish news to sustain the run-up which saw prices reach the highest levels in more than 20 years early this month.
The rise was fuelled by talk of diminished crop prospects in key producers Ivory Coast and Indonesia. "There is so little good information (from producing countries) the market tends to rally harder than it should on any possible bad news," he said. A stronger dollar added to downward pressure.
The dollar rose against a basket of six major currencies on Friday, boosted by news Citigroup Inc posted a smaller-than-expected loss in the second quarter, further calming fears about the health of the US financial sector. Sugar prices also fell, extending Thursday's sharp losses. October raws on ICE was off 0.15 cents at 12.56 cents a lb while October whites in London fell $13.20 or 3.5 percent to $359.80 a tonne.
Dealers said the decline in oil prices during the last few days had depressed sugar which is used in Brazil to produce biofuel ethanol as the focus returning to a global supply glut. Coffee markets were also swept lower, depressed mainly by weakness in other commodity markets. September arabica futures on ICE were off 0.25 cents at $1.3740 a lb while September robustas in London dipped $15 to $2,333 a tonne.
Dealers said prices in London were underpinned by concern about nearby supply tightness, with certified stocks currently insufficient to cover the open interest on July. The front month was trading at a premium of about $85 to $90 to September.