Sugar prices eased on Wednesday, depressed by a stronger dollar and weaker oil, although dealers noted a pick-up in physical demand. Coffee prices also fell although cocoa was higher in a modest rebound after the steep losses of the last few days.
Dealers said there was renewed demand for raw sugar in the physical market after the sharp decline in both futures prices and freight rates. October raws on ICE fell 0.08 cents to 12.63 cents a lb at 1447 GMT, with the contract down more than 2 cents from early August when it touched 14.69 cents.
"It has taken a major sell-off to get them (consumers) tempted into the market. We have fallen about two cents from the highs. That is a big move down to get a little bit of cash business going," said trader Nick Hungate of Rabobank. Hungate said sugar's decline mirrored similar setbacks in many other commodity markets.
"I think we are just being buffeted in the general commodities storm. If the dollar turns around and starts moving lower again or WTI moves higher probably sugar, because it has come off so quickly, will move higher," he said. October whites in London was down $5.80 at $391.70. The surge in the value of the dollar and sharp decline in crude oil has sparked a wave of fund and investor selling in the soft commodity sector this week.
"Oil has been the market which has been the catalyst for the drops we have seen in commodities in general," said one soft commodity futures trader. "Liquidation from funds and specs has followed along with that." Dealers said the closure of an Ospraie Management LLC commodities-linked fund may also have weighed on markets.
"News that Ospraie has lost an awful lot of money and closed one of its funds down has had a bit of a knock on commodities," the soft commodity trader said. Ospraie will close its flagship fund after it plunged 27 percent in August on losses in energy, mining and natural resources equity holdings, in one of the biggest ever closures of a commodities-focused hedge fund.
Roaster buying helped to limit losses on coffee although November robustas in London were off $23 at $2,230 a tonne while December arabicas on ICE eased 0.45 cents to $1.44 per lb. Cocoa prices were higher but remained sharply below levels traded a few days ago. December cocoa in London rose 11 pounds to 1,568 pounds a tonne, still down almost 100 pounds from Monday's high of 1,667 pounds. Dealers said a weak pound had limited London losses.
"The dollar is really underpinning (London) cocoa at the moment," one trader said, noting key support at 1,520 pounds, basis December. Ghana expects a 2008/09 cocoa harvest of 650,000 tonnes, state regulator Cocobod said on Wednesday as it signed a record $1 billion syndicated loan with international banks for the upcoming season.