(Agrimoney) – The softs complex surged on Monday, as raw sugar, cocoa, and arabica coffee all hit their highest level since the start of 2016, with sugar leading the gains as hedge funds enter “buy mode”.
Sugar futures got a boost from rising forecasts for the 2015-16 sugar deficit, the degree to which demand outstrips supply.
“In more recent weeks, fundamentals have reasserted their role as the prime driver of prices,” said Rabobank, pointing to a lower stocks-to-use ratio, and the looming deficit.
Rabobank on Monday raised its estimate of the deficit by 2.1m tonnes, while F.O. Licht upped its estimate by 0.8mn tonnes to 7.2m tonnes.
Mixed reactions
Commentator reactions to the news of increased speculator buying in the sugar markets were mixed.
The weekly Commitment of Traders (COT) report from the Commodities Futures Trading Commission showed hedge funds doubled their bullish bets on raw sugar futures in New York.
This raised concerns that increased fund buying might once again supress prices, as it raises the risk of a rapid speculator sell-off.
Marex Spectron termed the net long “uncomfortably big”.
‘Buy mode’
But Thomas Kujawa, at Sucden Financial, saw the upside to the news, which he said “seems to have been digested as supportive in the short to medium term”.
As Mr Kujawa pointed out, a net long of just under 80,0000 lots is not too threatening, in a market that recently saw a long of around 230,000 lots.
“The funds appear to be in buy mode and there is plenty of room,” he said, meaning that there is still plenty of money from hedge funds to fuel further buying.
“In summary it seems the story so far today favours the sugar bulls,” Mr Kujawa concluded.
May raw sugar settled up 1.9%, at 15.42 cents a pound, the highest level seen since the start of the year.
And May white sugar hit a 15-month high, up 1.2% at $438.50 a tonne.
Terrorist atrocity fuels supply fears
Cocoa markets looked to the Ivory Coast after a terrorist attack by Al Qaeda in the Islamic Maghreb, the militant group which took control of a large portion of neighbouring Mali in 2012.
The attack, which claimed the lives of 18 people at a beach resort on Sunday, has raised fears of fresh supply disruption in the world’s top cocoa exporter.
New York May cocoa reached its highest level since early January, up 0.6%, at $3,081 a tonne.
‘Improved sentiment’ boosts coffee
Coffee reached year highs as well. “The improved sentiment on the commodities markets is also boosting coffee prices,” Commerzbank said.
May robusta futures settled up 0.8%, at $1,438 a tonne, helped by dry weather in Vietnam and robusta areas of Brazil.
And May arabica coffee rose 1.1%, at 127.20 cents a pound, after hitting $1.277, the highest price since the start of the year.
Chinese selling could be less aggressive than feared
And in cotton, markets surged, after the COT showed speculators ramping up the biggest net short in over 3 years.
And the threat to markets posed by a Chinese cotton auction became a touch less acute as well.
Cotton traders have been wary of rumours that China would start to sell off its massive state reserves, potentially glutting the domestic market of what has historically been the top importer.
But Louis Rose, of the Rose Report, said that the latest market chatter suggested that the reserves would be offered at price “higher than originally expected” meaning less competition for imported product.
May cotton futures finished up 2.0%, at 58.23 cents a pound.
No rains in the plains
US Kansas wheat futures extended their premium to Chicago wheat on Monday, as concerns grew around dry weather in the US Plains.
“Very dry conditions have emerged in Kansas, the top US wheat state, where rainfall has been absent for a full month,” said forecaster Gail Martell.
And the same conditions are seen across “a very broad area” of the US Plains, Ms Martell said.
“Rain is needed very soon to replenish topsoil moisture, as warm temperatures are promoting vegetative growth and development.”
‘Plenty of dry spots’
And weather models are showing little sign of moisture for the Plains for at least the next 14 days, said Tregg Cronin
“Plenty of dry spots to keep trader attention,” he noted, pointing out concerns in the Canadian Prairies, Ukraine, and North Africa as well.
Darrell Holaday, of Country futures, said the recent dry weather across hard red winter wheat areas was less significant than the fears for dry weather in the future.
“There is virtually no correlation between March rainfall and final hard red winter wheat yields,” Mr Holaday said.
But April rainfall is “well correlated” with yields.
Cold snap on its way
And some colder weather is on its way across the plains and the US this week, weather models showed.
“I feel that most of the buying is tied to the concern about the colder temperatures because of the warmer than normal temperatures in March,” said Mr Holaday.
A warm winter, and an early spring, has left wheat particularly vulnerable to cold snaps, with low levels of winter hardening.
Kansas wins out
Threats to the Plains crop are supportive to all wheat prices, but particularly Kansas futures.
The Plains are the main growing area for hard red winter wheat, of the type traded in Kansas.
Kansas wheat added 3 ¼ cents a bushel to its premium to soft red winter wheat, traded in Chicago and mostly grown in the Midwest.
May Kansas wheat finished up 1.1%, at $4.88 ¼ a bushel, a two-month high.
May Chicago wheat futures finished up 0.5%, AT $4.78 ¾ a bushel, a one-month high.
Hot money threat
The wheat rally lent support to the grains complex, but gains in sobyeans were muted, after some bearish news in the CFTC.
Hedge funds slashed their net short by nearly half over the week to last Tuesday.
A lower speculator net short means that there is less chance of rapid short-covering by hot money.
“Considering funds were net buyers the balance of the week, the fund positions in soybeans and meal are quite manageable, unless a new supportive story develops,” said Benson Quinn Commodities.
May soybean futures went sideways, at $8.95 ¾ cents a bushel.
Delta to dry out, eventually
The CFTC was supportive for corn, as the speculator net long was record large, data which Benson Quinn said “surprised the trade”.
And weekend flooding across the US Delta, a key corn area, added support as well, by threatening to disrupt planting.
“Drier weather over the next few days will begin to ease flooding,” said Kyle Tapley, of MDA Weather Services, “but it will take some time for flooding to end”.
May corn finished up 0.9%, at a one-month high of $3.68 ¾ a bushel.
