ICE sugar turns higher after setting 2-1/2 year low

Raw sugar futures on ICE turned higher on Wednesday in a technical rebound after dipping to their lowest levels in around 2-1/2 years, and arabica coffee and cocoa recovered from their previous day’s losses.

Dealers said the prospect of a large cane crop in top producer Brazil had heightened concerns about excess sugar supplies and helped to drive prices to new lows, but the market remained susceptible to short-term gains.

“We’ve seen a little bit of a short-covering rally,” said Michael McDougall, a vice president at Newedge USA in New York.

March raw sugar futures on ICE were up 0.36 cent, or 1.99 percent, at 18.48 cents a lb at 1:07 p.m. EDT (1807 GMT) after falling to 18.06 cents, the lowest level for the front-month since August 2010.

Dealers said a favourable crop outlook in Brazil added to bearish sentiment on fundamentals with the market already struggling to absorb a substantial global surplus in 2012/13.

The scope for further losses was seen as limited, however.

“We believe sugar prices are now hovering at the marginal cost of production which implies current levels are a good support,” Standard Chartered analyst Abah Ofon said in a research note on Wednesday.

Brazil’s center-south cane belt should produce around 585 million tonnes of sugar cane in the 2013/14 season, or roughly 10 percent more than in the soon-to-end 2012/13 crop year, after intensive replacement of less productive plants, the head of cane industry association Unica said in an interview on Tuesday.

A switch towards ethanol in the use of cane in Brazil could, however, help to underpin prices with the government expected to increase the mandatory blend of ethanol in gasoline to 25 percent from 20 percent later this year.

“News like Unica expecting a record large cane harvest is making prices go down at the moment, but the other side is there will be a higher share of sugar cane in ethanol production,” Commerzbank analyst Michaela Kuhl said.

“We expect the government to increase the share of ethanol in gasoline back to 25 percent around summertime,” she said, adding she believed the current prices did not fully reflect the anticipated switch in cane from sugar into ethanol production.

A slump in cane output caused the government to reduce the mandatory blend of ethanol in gasoline to 20 percent from 25 percent in 2011.

March white sugar on Liffe rose $6.90, or 1.43 percent, to $490.10 per tonne. The contract dipped to $480.80 earlier in the session, the lowest level for the front month since June 2010.

COFFEE, COCOA REGAIN GROUND

Coffee and cocoa futures also rebounded after posting their largest drops in more than two months Tuesday.

Arabica coffee dealers said the market remained underpinned by concerns about the spread of a tree-killing fungus known as roya in Central America, producer of a fifth of the world’s arabica.

Costa Rica on Tuesday declared an emergency to tackle the spread of the coffee fungus that has already devastated Central American producers and looks set to destroy about 12 percent of Costa Rica’s planted coffee in the upcoming 2013/14 harvest.

“We think that prices are too low because although the (supply) situation is relatively good it is not as good as the market expects, especially if these roya problems really materialize,” Kuhl of Commerzbank said.

Some dealers, however, said the market may have overreacted to the reports.

“It has probably been overstated by the Central American producers because it’s in their interest to overstate it,” one London dealer said.

March arabica coffee futures on ICE rose 2.6 cents, or 1.75 percent, to $1.512 per lb.

A Reuters poll on Wednesday projected higher prices for arabica coffee by the end of the year with the market clawing back from some of last year’s steep losses.

March cocoa futures on ICE inched up $2, or 0.09 percent, to settle at $2,215 per tonne, paring the day’s earlier losses.

New York March cocoa is expected to test support at $2,202 per tonne, a break below which will open the way towards $2,119, Reuters market analyst Wang Tao said.

May cocoa futures on Liffe rose 5 pounds to close at 1,453 pounds a tonne.


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