White sugar futures set a record peak and London cocoa climbed to its highest in 32 years on Thursday with investor appetite for both commodities fed by supply concerns that have created global deficits.
While wider commodity markets have benefitted this year from dollar weakness against major currency rivals, soft commodities have the added impetus of a classic supply-induced rally that has seen sugar prices alone more than double.
Rains in Brazil have shrunk the size of the crop in the world's leading producer and exporter of sugar at a time of strong demand from India while cocoa faces the prospect of a fourth consecutive global supply shortfall in 2009/10.
For a long-term price chart of cocoa and sugar click on
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"We know there will be a global deficit (in sugar) next year so the fundamentals are very, very bullish," said Romain Lathiere, fund manager with Diapason Commodities Management.
March white sugar on Liffe climbed to a record peak for the front month of $680.70 per tonne although gains were trimmed later as the dollar strengthened. The contract was last quoted at $668.90 by 1222 GMT, still up $2.70 or 0.4 percent on the day.
Earlier this week, Brazil's crop supply agency Conab said persistent rains since July had cut Brazil's 2009/10 sugar output to 34.6 million tonnes from 36.7 million seen in September.
"Weather forecasts are also predicting disproportionately high rain (in Brazil) for the coming months, which may exacerbate the existing supply shortage," Commerzbank said in a market note on Thursday.
March raw sugar futures on ICE stood 0.09 cent firmer at 26.03 cents a lb after hitting a contract high of 26.64.
"It (the rally) is not really sustainable. On New York (ICE) sugar we could go back soon to 24.00, 24.50 (cents a lb) and then go up to 28.00," Diapason's Lathiere said.
WEAK POUND
Cocoa futures in London received additional support from the weakness of sterling while prices on ICE fell as the dollar strengthened.
May cocoa on Liffe rose 20 pounds or 0.6 percent to 2,342 pounds a tonne, having hit 2,349 pounds earlier — the highest level for the benchmark second month since October 1977, according to ThomsonReuters data.
Prices rose as high as 3,512 pounds in July 1977, which in real terms would be many times current levels, boosted then by a drop in stocks to levels far lower than now.
The International Cocoa Organization (ICCO) earlier this month estimated stocks at the end of the 2008/09 season at 1.56 million tonnes compared with just 274,000 tonnes 32 years earlier. The stocks to grinding ratio was also a healthier 44.4 percent versus an all-time low of 19.1 percent in 1976/77.
Stocks have, however, been steadily declining as West African producers struggle to keep pace with a long-term growth in demand for cocoa.
"There is a big lack of investment in cocoa in Ivory Coast and Ghana, as well as a lack of use of fertilisers and treatments against black pod," Lathiere of Diapason said.
Cocoa futures on ICE fell back after soaring to the highest level in more than 30 years on Wednesday. March fell $32 or 0.9 percent to $3,466 a tonne, although remained in striking distance of the 30-year high of $3,510.
Arabica coffee futures, which rose to a 16-month high on Wednesday, also fell back, weakened partly by a stronger dollar.
The market has been supported by concerns about the outlook for the crop in top producer Brazil following the heavy rains.
March arabicas on ICE fell 1.9 cents or 1.3 percent to $1.4645 per lb. The contract peaked on Wednesday at $1.4950, a 16-month high for the second position.
Robusta coffee futures, which lagged arabicas during the run-up, were also slow to respond to the setback with March off just $6 at $1,400 a tonne.
"It's a slight correction from the highs helped by the stronger dollar," Lathiere said.
