Cocoa futures rallied again on Thursday as investors continued to pile into beans, fearing a potential disruption to supplies from the world's top producer Ivory Coast after the unexpected dissolution of the West African country's government. Arabica coffee futures on ICE slumped to their lowest level in more than two years because of rising stocks, while signs that the sugar surplus continues to grow kept prices under pressure.
Technical buying after the New York cocoa market pierced a long-term moving average helped prices on both sides of the Atlantic extend Wednesday's rally. Both markets reached highs last seen on October 24 for a second day. "Today's rally is purely follow-through from yesterday. There's been some good technical action," said a US hedge fund manager.
ICE March cocoa settled up $26, or 1.06 percent, at $2,483 per tonne after hitting an intraday high of $2,488 per tonne. Prices rallied 3 percent, their largest daily rise in 10 weeks, on Wednesday as shorts raced to cover their positions after the government dissolution. Index rolls, which ended on Wednesday, had added to upward momentum. The December contract's premium to March almost doubled to $19 per tonne from $11 in the previous session ahead of its first notice day Friday.
The gains may only be temporary given the bumper crop expected from Ivory Coast, which produces around 35 percent of the world's cocoa, traders said. "The rally is not sustainable. Fundamentally there is nothing to justify this rally. The Ivory Coast still has its mid-crop to sell and Europe's in recession," said the hedge fund manager.
The cocoa industry often responds to violence and political unrest in Ivory Coast by trying to secure supplies. Cocoa climbed to a 32-year high in March 2011 as exports were halted for months by a civil war after the November 2010 run-off election. Fears the conflict would threaten the country's cocoa crop proved unfounded, though, with a record crop harvested that year.
Benchmark Liffe March cocoa futures settled 10 pounds, or 0.63 percent, higher at 1,602 pounds per tonne. March arabica coffee futures remained under pressure after hitting $1.4945, the lowest level for the second month since June 2010, weighed down by forecasts of bumper output. Prices were down 0.55 cent, or 0.36 percent, at $1.5220 per lb at 12:57 p.m. EST (1757 GMT).
"The current arabica supply picture is comfortable and stocks are building," brokers Marex Spectron said in a report on Thursday, adding that a large Brazil crop had allowed for re-stocking internally as well as exports. Arabica coffee futures have lost around one-third of their value so far this year. "We favour arabica over robusta and expect the arabica market to improve given sharply lower prices, although an improved harvest in Brazil is likely to cap the upside," Standard Chartered said in a market note.
Dealers said the robusta market was expecting a large crop in Vietnam, albeit slightly smaller than last year. Marex Spectron said the consensus was that the crop would be unchanged to 10 percent lower than last year's 27 million bags, with the average at down 5 percent. January robusta coffee futures were up a marginal $3 at $1,905 a tonne after earlier dipping to $1,891, the lowest level for the second month since February 8.
Raw sugar futures continued to be weighed down by concerns about a growing global oversupply for the 2012/13 season, with China, one of the world's largest consumers, sitting on a glut of stock, traders said. Reinforcing those fears, the International Sugar Organisation raised its forecast for a projected global surplus in 2012/13 to 6.18 million tonnes and said prices could remain under bearish pressure until the end of the current crop cycle.
March sugar futures were off 0.21 cent, or 1.09 percent, at 19.03 cents a lb. The front month fell to 18.66 cents last week, the lowest level for the contract since August 2010. Dealers said a key focus on Thursday would be the expiry of the December whites contract on Liffe with a large delivery anticipated. The open interest, as of the close on Wednesday, stood at 17,015 lots, or 850,750 tonnes. The bulk of the sugar delivered is expected to be Brazilian, although some Indian sugar may also be tendered. December white sugar on Liffe slipped $10.30, or 1.94 percent, at $520.60 per tonne.