ICE cocoa eked out further gains on Friday and ended the month more than 9 percent higher as speculative buying continued amid fears of lower output from key grower Ivory Coast. Sugar rose slightly on short-covering ahead of the long US Labour Day weekend while arabica coffee was slightly higher.
Traders cautioned that the buying in cocoa, which jumped almost $250, or more than 10 percent, in a week, had been overdone and the fears about damage to West African crops were exaggerated. Prices briefly slipped into negative territory for the first time this week ahead of the close as some investors locked in profits before the long US Labour Day weekend.
But ICE December cocoa futures recovered to settle up $9 or 0.35 percent at $2,610 per tonne. They hit fresh nine-month highs of $2,647 per tonne, and set new nine-month highs every day this week. Cocoa found a little support from a weaker dollar which fell to three-month lows after Federal Reserve chairman Ben Bernanke reinforced expectations that the central bank will ease monetary policy further to boost the world's largest economy in a much-anticipated speech.
But traders pegged most of the aggressive buying to concerns that cooler weather and a lack of sunshine in the Ivory Coast, the world's top grower, could hurt the main crop which will be harvested in October. Sporadic outbreaks of violence in the country, which was roiled by civil war early last year, have also supported prices. "In the short term there is a lot of bullish momentum, driven by uncertainty over what the new West African main crops will look like," said Kona Haque, soft commodities analyst with Macquarie Bank.
After rising more than 9 percent in August into overbought territory, cocoa prices will be vulnerable to pressure when US markets reopen on Tuesday after the long Labour Day weekend. "It was also the build up to Bernanke, but we could see a sell off after Labour Day," said Bill Collard, who heads up Florida-based commodity brokerage firm the Futures Management Group.
Liffe December cocoa eased 8 pounds or 0.5 percent to 1,697 pounds a tonne in light volume of 10,221 lots. October raw sugar futures on ICE settled at 19.78 cents per lb, up 0.03 cent or 0.15 percent, in choppy trade on late short covering. The gains came even after warnings from the International Sugar Organisation and consultancy Kingsman that the global surplus will grow in 2012/13 due to Brazil's bumper crop.
Brazil's progress with its harvesting has kept prices close to oversold territory since August 9 based on the Relative Strength Index (RSI). That means the market will be vulnerable to flurries of short covering, traders said. Prices fell 13 percent in August and are down almost 20 percent since mid-July, teetering on the brink of bear territory.
October white sugar futures on Liffe rose $7.3 or 1.3 percent to $566.4 per tonne, having on Tuesday touched $544.50, the lowest level for the front month since August 2010. Benchmark December arabica futures on ICE rose 0.01 cent or 0.82 percent to $1.6475 per lb, recovering from losses on technical buying after prices touched intraday lows of $1.625. Robusta coffee futures on Liffe were slightly firmer in light volumes. November robusta coffee futures were up $13 or 0.63 percent at $2,077 per tonne in light turnover of 5,908 lots.