Sugar hits 3-week peak on concerns over Brazil crop

(Reuters) – Raw sugar futures extended the previous session’s gains to hit a three-week high on Thursday after the first 2014/15 crop forecast from Brazilian cane industry group Unica raised concerns about production.

Arabica coffee futures on ICE dipped in a technical correction after rallying on Wednesday to hit a 26-month peak, powered by downward revisions in expectations for Brazilian 2014/15 output due to drought.

ICE cocoa was little changed, underpinned by concerns that a possible El Nino weather event could erode future supplies.

May raw sugar futures on ICE SBc1 jumped 0.17 cent, or 1 percent, to trade at 17.59 cents a lb – a three-week high – before losing some ground to hit 17.49 cents, up 0.07 cent or 0.4 percent at 1118 GMT.

August white sugar on Liffe LSUc1 eased by $1.00, or 0.2 percent, to $478.80 a tonne in light volume of 816 lots.

In its first formal forecast of the year for the world’s biggest sugar producer Brazil, Unica said that a severe drought early this year has kept the centre-south cane crop from reaching its full potential.

It forecast the country’s main centre-south cane belt will produce 32.5 million tonnes of sugar in the April-to-March season, down 5 percent from 2013/14 and at the low end of expectations.

“We were surprised by the strength of the price reaction to the Unica numbers,” said Tracey Allen, commodities analyst of Rabobank International.

“From current levels we expect a selloff in the next few days.”

The sugar market is focusing on next week’s expiry of the ICE May contract, with some dealers seeing Central American and Mexican sugars potentially delivered against the expiry.

ICE coffee futures slipped as speculative selling hit the market and dealers closed positions after Wednesday’s rally.

July arabica coffee futures on ICE KCc2 traded down 2.35 cent or 1.1 percent at $2.1160 per lb, having climbed in light volume on Wednesday to a peak of $2.1900, the highest level for the second month since February 2012.

Dealers said hot, dry weather in Brazil earlier this year looked set to reduce both the size and quality of this year’s coffee crop, potentially leading to a substantial global deficit in the 2014/15 season.

Volcafe, one of the world’s biggest coffee merchants, on Tuesday cut its 2014/15 coffee crop estimate for the world’s top grower Brazil by 10 percent to 45.5 million 60-kg bags and forecast a global deficit.

“There is still a lot of uncertainty around over coffee production forecasts,” Allen said.

July robusta coffee on Liffe eased $13 or 0.6 percent to $2,157 a tonne in moderate volume of 2,150 lots.

Cocoa on ICE was little changed in rangebound dealings, with dealers seeing upside price risk if El Nino materialises in the coming months, potentially bringing dry weather to top producer Ivory Coast.

ICE July cocoa was down $3 or 0.1 percent at $3,005 per tonne.

July cocoa on Liffe traded down 5 pounds, or 0.3 percent, to 1,877 pounds a tonne in slim volume of 2,164 lots.

“A close below the 40-day moving average at 1,867 pounds opens potential for further declines towards April’s low at 1,843, which acts as immediate support,” said Myrto Sokou, senior research analyst with Sucden Financial.