Coffee Prices Heat Up 3% to Two-Month High
Arabica coffee futures on ICE rallied by more than three percent to a two-month high on Thursday, climbing for the sixth straight day on investor short-covering and technical buy signals in heavy volume.
Raw sugar on ICE Futures U.S. was steady and cocoa saw its biggest one-day fall in more than two months, falling below the 200-day moving average in light trade with many traders away for Ascension Day holiday.
Arabica coffee futures on ICE extended their rise, making higher session lows and higher session highs, a technically bullish signal, for the sixth straight day. The market continued to climb up from a three-year low at $1.3270 per lb on April 29, basis July, pressured by expectations of an abundant off-year crop in Brazil.
This, combined with a forecast for cold weather in a high-altitude region of top grower Brazil and a higher benchmark price established by the Brazilian government, spurred investors to cover their short positions.
ICE July arabica coffee rose 4.4 cent, or 3.05 percent, on technically driven buying to $1.4855 per lb by 12:19 p.m. EDT (1619 GMT). Total volume soared above 31,000 lots, already up 40 percent from the total 250-day average, preliminary Thomson Reuters data showed.
The day's jump pushed July above the 100-day moving average at $1.4588 per lb and then the 23.6 percent Fibonacci retracement level, spurring even more technical buying, dealers said.
(Graphic on arabica: http://link.reuters.com/bac97t)
The market has rallied in the past but given that this is its first break above the 100-day moving average since October, some expect this rally may have more staying power than the others, dealers said.
Dealers said the market showed a general lack of concern about Wednesday's frost warning in one coffee zone in top producer Brazil.
"Such reports are a reminder that we are around the corner from the frost season," said Andrea Thompson, an analyst with CoffeeNetwork, part of INTL FCStone.
The frost season in Brazil typically starts in early June.
"It got people realizing we're heading into the colder season so it might be an excuse for some people to cover some shorts and it gave the Brazilians the reason not to sell," one U.S. dealer said.
"That allowed the market to get enough momentum to the upside that you've started to trigger technical short-covering and maybe some new longs coming into the market."
Earlier this week, the Brazilian government raised its benchmark price for arabica coffee, a decision traders see as a sign of imminent government intervention to boost prices.
While Thompson said she saw no market impact from the news, the U.S. dealer said this gave some the feeling that the market cannot go lower and so must go higher, attracting some buying.
July robusta coffee futures on Liffe were up $36, or 1.8 percent, at $2,041 a tonne in turnover of 9,146 lots.
BRAZIL CANE HARVEST
July raw sugar futures were up 0.05 cent, or 0.3 percent, at 17.52 cents a lb. Prices are still within sight of a more than 2-1/2-year low of 17.13 cents a lb, touched on April 29, pressured by expectations of a record cane crop in Brazil and bigger-than-expected output in Thailand and India.
Favorable crop weather in top exporter Brazil has allowed harvesting in the main centre-south growing region to speed up, weighing on prices.
"It seems we are heading lower sooner rather than later and expect resistance now at 17.50 cents up to 17.60 cents," said Thomas Kujawa of broker Sucden Financial Sugar.
August white sugar on Liffe was down 70 cents, or 0.1 percent, at $486.50 a tonne in moderate volume of 6,798 lots.
ICE cocoa futures fell nearly 2 percent, falling below the 100-day moving average with the market consolidating after a prolonged run-up in prices during the last couple of months.
(Graphic on ICE cocoa: http://link.reuters.com/kub97t)
Dealers said activity was thin as many players were away for the Ascension Day holiday in Europe and Africa.
ICE July cocoa closed down $42, or 1.8 percent, at $2,349 a tonne. Total open interest continued to soar on May 8 when it hit a record for the seventh straight day at 226,009 contracts, up 1,652 contracts from the previous session, exchange data showed.
Liffe July cocoa settled down 16 pounds, or 1 percent, at 1,542 pounds a tonne. The contract neared its 100-day moving average at 1,538 pounds. (Editing by James Jukwey and Marguerita Choy)