Cocoa futures crumbled Thursday after Europe's second-quarter consumption data fell much more than expected, underscoring the pervasive gloom cast by the continent's economic crisis.
The benchmark September cocoa contract on ICE Futures U.S. tumbled $103 or 4.5 percent to settle at $2,189 per tonne, having hit a low for the day of $2,175. It was the lowest close since June 26 and the biggest percentage drop in 5-1/2 months, basis second-position.
London's September cocoa futures slid 76 pounds, down almost 5 percent, to finish at 1,520 pounds per tonne.
Europe's cocoa grind posted its sharpest quarterly fall in at least 12 years, dropping 17.8 percent in the second quarter from a year earlier to 292,551 tonnes, the Brussels-based European Cocoa Association said.
The decline was more than triple the fall of about 5 percent that most in the industry had expected, from 355,763 tonnes in the 2011 second quarter. Even the most pessimistic view was for a 12 percent drop.
"I'm shocked. The market has been talking about poor grindings for a while, but poor was translating into a 7 to 8 percent fall," said Jonathan Parkman, joint head of agriculture at broker Marex Spectron.
Sterling Smith, vice-president of commodity research at Citibank's Institutional Client Group, said the grind figures are "reflective of the situation in Europe" given the fact Europeans consume more cocoa-made chocolate than Americans.
"It confirms the worst fears in the cocoa market," he said.
Kona Haque, senior soft commodities analyst with Macquarie Bank, said the weak grind data reflected the economic slowdown in Europe, and overcapacity, putting pressure on margins.
Germany's second-quarter 2012 cocoa grind fell 16.73 percent on the year to 84,643 tonnes, the association of German confectionery producers BDSI said on Thursday.
Cocoa was also pressured by the sharply lower sterling and falling commodity complex, dealers said.
"There isn't any substantial offtake. The market is very slow," said one veteran cocoa dealer in New York. "The next quarter is going to be very poor too. That is the result of physical off-take, or lack of it. The processing industry in Europe is facing their worst margin ever."
SUGAR AND COFFEE RUN INTO PRESSURE
Sugar futures also tumbled, as weakness in the commodity complex and the performance of the euro induced some profit-taking among investors.
The market digested news that while India's annual monsoon rains were 1 percent above average for the week ended July 11, rains in cane growing Maharashtra state remained 17-37 percent below average.
The trade awaited Brazilian sugar production data from industry group Unica expected later in the session.
The key October raw sugar contract lost 0.48 cent or 2.1 percent to trade at 22.40 cents per lb at 12:09 p.m. EDT ( 1609 GMT). The contract touched 23.05 cents on Tuesday, the highest level for the benchmark front month since April 18.
White sugar futures on Liffe fell, with August down $11.60, or 1.7 percent, to trade at $646.60 per tonne, having touched $663.80, the highest level for the benchmark front month since March 26.
"In the coming session we think the next 50 points in the market will be more likely to the downside and expect a test of the support around 22.50 cents a lb," said Thomas Kujawa of brokerage Sucden Financial.
The sugar market was underpinned by wet weather in Brazil, which has delayed the flow of sugar out of the top exporter.
Dealers focussed on expiry of the London August futures contract on July 16, with one European broker saying he expected that mainly Brazilian sugar, Guatemalan sugar and possibly some Thai origin would be delivered.
Arabica coffee futures posted significant losses, giving back recent gains after climbing near technically oversold areas on the 14-day relative strength index and on pressure from the falling commodity complex.
The benchmark contract appeared to be finding support at the 100-day moving average at $1.7777 per lb. The arabica/robusta arbitrage narrowed to around 88 cents per lb, sharply lower that Wednesday's intraday high of 99 cents.
"The market is very short arabica and long robusta," said the New York dealer. "I think people have been burned by the arbitrage in coffee this year. There has been a shift in robusta, in terms of global demand."
September arabica coffee futures dropped 3.20 cents or 1.7 percent to trade at $1.815 a lb at 12:11 p.m., pressured by the strengthening dollar against the euro.
Robusta coffee futures on Liffe lost ground, with September down $9 to trade at $2,012 per tonne.
Expectations of a huge arabica harvest in Brazil weighed on the market. Heavy rainfall has raised concerns over the quality of the crop, triggering a rally starting in the middle of last month from two-year lows. (Additional reporting by Sarah McFarlane in London and Marcy Nicholson in New York; Editing by Jane Baird, Alison Birrane and David Gregorio)