(Reuters) – Arabica coffee futures on ICE turned higher after falling to a 5-1/2-week low on Thursday, while raw sugar surged 4 percent late in the session as strength in top grower Brazil’s currency attracted speculative buying.
London cocoa was supported by the falling British pound after the Bank of England surprised markets with a 60 billion pound bond-buying package.
September arabica settled up 1.7 cents, or 1.2 percent, at $1.421 per lb, after falling to $1.3685, the weakest level for the spot contract since late June.
Prices turned sharply higher in tandem with sugar futures, triggering technical buying, with traders attributing the unexpected surge to the firm Brazilian real against the U.S. dollar.
Favorable harvest conditions in Brazil reduced concerns about supplies, helping to keep the market on the defensive earlier and causing the September/December spread KCU6-Z6 to widen to a $3.60 discount. This was the biggest discount in more than two years and a sharp drop from $3.45 on Wednesday.
“This September/December spread is the so called ‘frost’ spread,” said one U.S. trader.
“We have liquidation there, coupled with the beginning of the (index) roll which is causing increased pressure.”
September robusta coffee settled down $10, or 0.6 percent, at $1,817 per tonne, with the market shrugging off expectations for weak exports from Vietnam and Indonesia.
Sugar prices rallied after the spot raw contract’s rise above the prior session’s high triggered buy-stops, traders said.
October raws settled up 0.66 cent, or 3.5 percent, at 19.7 cents per lb.
Capital Economics said in a note that it forecast the price stabilizing around 17.5 cents by the end of 2016.
“The annual drawdown of stocks suggest that prices could rise again a little to 18.5 cents at end-2018,” it said.
October whites settled up $14.30, or 2.7 percent, at $542.70 per tonne.
London cocoa futures were firm with September futures closing up 25 pounds, or 1.05 percent, at 2,404 pounds per tonne.
Dollar-denominated September New York cocoa settled down $2, or 0.1 percent, at $2,991 per tonne.
“The market is very erratic at the moment. The bulls won on Monday, the bears won on Tuesday and the bulls won on Wednesday. There is a tug-of-war going on at the moment,” one dealer said.
Dealers said the cocoa market’s structure, with nearby contracts trading at a premium to more distant positions, indicated that cocoa supplies remained tight.
