Sugar, cocoa prices fall, caught in commods downturn

Sugar and cocoa markets fell on Friday, swept along in a broad-based downturn in crude oil and other commodities, as prices slid back from peaks set earlier in the week, dealers said.

Coffee prices were higher, however, boosted by a weaker dollar while dealers also noted Deutsche Bank ( DB - news - people )'s rebalancing of its exchanged-traded commodity funds which should provide some support for arabicas.

December white sugar futures stood $12.40 lower at $596.90 per tonne at 1428 GMT. The contract rose to a peak of $621.00 on Thursday, a record high for the front month.

Dealers said concern about heavy rains in top producer Brazil, as well as expected strong demand from India, should limit the scope for further losses.

VM Group analyst Gary Mead said rains in Brazil had been unusually heavy in July and August, delaying the crush and lowering the sucrose content of cane, adding he saw no reason why prices should fall back sharply from the highs.

"We are entering into the rainy season now so the crush and the sucrose are going to be two big problems for the Brazilian crop this year," he said.

Meteorlogix said on Friday "episodes of showers will impact harvest and crop quality (in Brazil)".

March raw sugar on ICE fell 0.56 cent to 24.08 cents a lb.

Pakistan has bought 25,000 tonnes of white sugar at $676 per tonne cost and freight and free out (CFFO), in a tender that closed on Sept. 30, a government official and a trader said on Friday.

HEDGE SELLING

Cocoa prices were also lower on Friday.

March cocoa in London fell 65 pounds to 2,006 pounds a tonne. The contract rose on Thursday to a peak of 2,108 pounds, a 24-1/2 year high for the second month.

"The market has done exceptionally well this week so some sort of pullback in a bull market isn't unheard of and maybe that is what we are seeing at the moment," one dealer said.

Dealers were awaiting the start of the main crop season in top producer Ivory Coast next week, adding the market would have to absorb significant hedge selling over the next few weeks.

Third-quarter grind figures, which should be issued in the next couple of weeks should also provide indications about whether demand is starting to recover.

Cocoa grindings are seen taking a hit in the third quarter of 2009, but losses should not be as bad as the first half of the year as chocolate makers replenish stocks for the Christmas and New Year holidays.

"The consensus seems to be a minus figure but if they (the grind figures) are not as damaging it may be another lift for cocoa," one dealer said, adding some industry participants had suggested grind numbers may have been better than anticipated.

Cocoa futures on ICE also fell with December off $90 at $3,002 a tonne.

Arabica coffee futures on ICE rose, boosted by a decline in the value of the dollar as a weak September U.S. jobs report raised concerns about a tentative economic recovery.

Dealers said some buying may also have been generated by news of the Deutsche Bank rebalancing, which may result in about 5,000 lots of buying of arabica coffee in the second half of this month.

December arabica futures rose 2.05 cents to $1.2875 per lb while November robustas edged up $10 to $1,373 per tonne.

Dealers said gains in robustas were limited by an expected pick-up in hedge selling as the Vietnamese harvest gathers pace over the next few weeks.

source: reuters