Cocoa jumped almost 4 percent amid short-covering on Monday to test a key resistance level as fresh violence in Ivory Coast, the world's No. 1 grower, reignited concerns about supply disruptions. Coffee also rose on short-covering, and raw sugar recovered from two-and-a-half-month lows. Moves to the upside were exaggerated by low volumes, with London markets closed for the UK bank holiday.
Cocoa rallied to $2,498 per tonne after a shooting at an army checkpoint in southern Ivory Coast. But the market failed to breach the key level of $2,500 per tonne. "I think program buyers came out and bought the market in initially very thin conditions and triggered stops and short-covering," a broker said. ICE December cocoa futures settled up $77, or 3.1 percent, at $2,474 per tonne, piercing short- and long-term moving averages on the way up.
It is the third straight session of gains and the first effort to surpass $2,500 per tonne since a brief jump above that level on August 13, the first time this year. The market was digesting news that four people were killed in Ivory Coast in an exchange of fire between soldiers and unidentified gunmen at an army checkpoint, renewing fears that supplies may be hampered if violence spreads to the key producing regions of the country. Early last year, fighting in the West African country due to a dispute over election results curbed exports. With London closed, there was less producer selling or arbitrage activity to limit falls.
A weaker dollar provided some support, with the market looking toward a speech by Federal Reserve Chairman Ben Bernanke at the end of the week for a clear signal on whether further stimulus measures are in the offing. Arabica coffee futures were on track for their largest one-day gain since the end of July, bouncing back from four weeks of pressure largely on a spate of short-covering. Benchmark December arabica futures traded up 4.25 cents, or 2.61 percent, at $1.6715 per lb at 12:40 p.m. EDT (1640 GMT).
Traders said the market would be prone to short-covering after a surge in speculative shorts in the Commodity Futures Trading Commission data released on Friday. Speculators raised their net short position in coffee by 41 percent to 24,584 lots, almost hitting levels last seen in 2008 when the market was in the throes of the global economic crisis.
Exchange stocks hit two-year highs close to 1.9 million bags last week and physical differentials remain under pressure, suggesting demand has weakened. Benchmark October sugar futures on ICE recovered from two-and-a-half-month lows on Friday to rise 0.14 cent, or 0.72 percent, to 19.71 cents a lb. While prices have recovered some lost ground, they are still down 18 percent over the past month and teetering on bear territory.
On charts, the market's Relative Strength Index (RSI) rose to 34, exiting oversold territory seen on Friday when the index registered 28. An area below 30 often indicates a market is oversold. Selling accelerated late last week after data by Brazilian milling association Unica reinforced concerns about a surplus and eased concerns about any disruption to supplies.