Raw sugar slips on global surplus, cocoa down

LONDON - Raw sugar futures edged lower on Tuesday due to concerns about a growing global surplus and a big Brazilian harvest, dealers said.

By (Reuters)

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Published: Tue 8 May 2012, 7:08 PM

Last updated: Tue 7 Apr 2015, 11:25 AM

Cocoa eased, in line with weaker outside markets including oil and stocks, while coffee futures were little changed.

Raw sugar futures on ICE fell, consolidating above last week’s one-year low, as recent upward revisions to the expected 2011/12 global surplus weighed on prices.

“I wouldn’t be surprised to see the market come as low as 18 cents a lb, we have a massive surplus,” said a London-based broker.

“Most of the Brazilians still have around 40 percent to price, there’s a lot of producer selling to come.”

ICE July raw sugar traded down 0.19 cent or 0.9 percent at 20.86 cents a lb at 1127 GMT, just above a 12-month low of 20.50 cents a lb touched on Wednesday.

Dealers said the recent fall in prices had stimulated buying appetite on the physical market as importers looked for a bargain, helping underpin futures prices.

China has issued licences for the import of 300,000 tonnes of sugar in the past two weeks, dealers said on Tuesday.

London August white sugar was up $0.30 or 0.05 percent at $566.40 per tonne.

The potential for more of Brazil’s cane crop to go to ethanol production also helped underpin prices, dealers said.

“It’s not as bearish as the recent trading conditions might suggest,” said Tobias Merath, a commodities analyst at Credit Suisse, noting more cane could be diverted to ethanol production.

“While the Brazil harvest may be bigger than expected, how much will end up on the global sugar market is not clear,” he added.

COCOA PRESSURED

Dealers said the cocoa market was under pressure from origin selling, with both Ivory Coast and Ghana forward selling their 2012/13 crops.

“I’m not bullish given how much cocoa has to be sold. With two countries instead of one that are forward sellers, it’s a lot of selling for the market to absorb,” said a London-based broker.

“Industry is well covered. With close to 10 months cover, they’re not in a rush to buy.”

One potentially bullish factor noted by dealers was a large speculative short position on ICE, which could fuel a rally if shorts were forced to cover.

Speculators trimmed their net short position in U.S. cocoa futures and options by 2,861 lots to 26,565 lots in the week to May 1 U.S. Commodity Futures Trading Commission data showed on Friday. ¨ûID: nL1E8G4LBX¨ü

“It’s still a big speculative short position, even though it’s decreased a bit,” said the broker.

ICE July cocoa was down $32 or 1.4 percent at $2,325 per tonne, with favourable weather expected to boost West Africa’s mid crop.

London July cocoa was up 11 pounds or 0.7 percent at 1,537 pounds a tonne.

Arabica coffee prices eased as dealers eyed a large speculative short position in New York.

“The speculative short position is a recipe for a massive short covering rally,” said a London-based broker.

July arabicas on ICE were near unchanged at $1.7555 per lb, above their 18-month low hit in April, basis second month, of $1.7390 per lb.

Dealers said that the coffee market had some bullish fundamentals, including firm differentials in top producer Brazil, which could support higher futures prices.

Yet market technicals remained bearish, with potential for further losses based on historical price charts.

“What is still a major drag is the technical picture - the market’s in a negative technical trend,” said Credit Suisse’s Merath.

“Our three-month forecast is $1.70 per lb, with the main driver being technicals.”


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