Cocoa, sugar tumbles while arabica coffee tests multi-year highs

After reaching 32-year highs in early March, US cocoa futures have since fallen by more than 20 per cent on hopes that cocoa would start moving from top producer Côte d’Ivoire, after four months of disruption. A turning point in the four-month long conflict in the country, following the disputed 28 November election result, came with the arrest of the incumbent President Laurent Gbagbo on 11 April. The electoral stalemate and fighting between rival factions followed Gbagbo’s refusal to concede power to the internationally recognised President-elect Alassane Ouattara.

Cocoa shipments from the country have been disrupted since Ouattara  ordered an cocoa export ban in January, as well as the imposition of various international sanctions against Côte d’Ivoire aimed at unseating the incumbent president. The European Union lifted restrictions on the cocoa-exporting ports of Abidjan and San Pedro on 8 April after Ouattara called for the removal of the restrictions in an attempt to revive the country’s conflict- devastated economy.

As at mid-April, traders said it was too early to say when cocoa exports would resume, but others hoped cocoa could start flowing from the country within the next week or so. Some sources believed the main barrier to trade resuming in Côte d’Ivoire  was the crippled banking system after foreign banks suspended operations in February.

In March, Côte d’Ivoire’s Coffee and Cocoa Bourse (BCC) estimated up to 475,000 tonnes of cocoa were stuck at the country’s ports. However, it is not known if the beans are still in good condition.

US cocoa futures had touched a 32-year high of $3,775 a tonne on New York’s ICE on 4 March, while LIFFE’s May cocoa contract reached £2,396 a tonne. By close of the day’s trading on 15 April, New York's July cocoa contract was down at $3,157 per tonne, while London's July cocoa contract closed at £1,979 a tonne.

Raw sugar slides to six-month low

Raw sugar futures slumped to a six-month low in mid-April amid speculation that global supplies are sufficient to meet demand following increased estimates of this year’s output in Brazil and Thailand, the world’s two biggest sugar exporters.

The raw sugar second-position contract (currently July) on New York’s ICE had dropped to 22.97 US cents a pound by 15 April. In London, refined sugar futures for August delivery touched US$628.80 a tonne on LIFFE on 14 April, the lowest since 7 October last year.

Raw sugar futures had hit 30-year highs on 2 February, as concerns mounted that bad weather in key producing countries like Australia and export restrictions in India were limiting global supplies.  The front-month raws contract (then March) on ICE had surged to 36.08 US cents a pound and the benchmark second position contract (then May) to 33.11 cents.  In London, white - or refined - sugar futures for March delivery had touched $857 a tonne, the highest since January 1989.

Many analysts and market players fear sugar futures prices may weaken even further when Brazil begins its harvest in late April. On the other hand,  the country could opt to divert more of its sugar cane crop to the production of ethanol given that ethanol prices are being driven up by the near two-and-a-half price highs of crude oil.

Arabica coffee futures, meanwhile, in mid-April were tracking upwards towards the 34-year peak reached in early March on the back of growing worries about lower output in Brazil, the world’s biggest coffee producer. Brazil’s coffee harvest in the 2011-2012 coffee year is expected to be 13per cent smaller than last year on account of it being the country’s off-year for its arabica coffee trees’ two-year cycle, the country’s Agriculture Ministry reported.

Arabica coffee for July delivery reached $2.9165 a pound on New York’s ICE on 15 April, the highest for a most-active contract since 10 March. On 9 March, New York arabica futures had reached $2.9665 a pound, the highest in 34 years.

Meanwhile, robusta coffee futures in London settled at $2,469 a tonne basis the July LIFFE contract on 15 April.

Adverse weather impacts Kenyan tea output

Meanwhile, Kenya, the biggest exporter of black tea,  has seen its tea output hit by adverse weather. The arrival of long rains – typically in March – were preceded by particularly hot, dry weather conditions. The Tea Board of Kenya (TBK) reported that frost and dry weather had halved some of the production of tea processing firms in the main Rift Valley producing areas. Statistics released by TBK show Kenya’s tea production in February fell 23 per cent to 26.7mn kg compared with the same month in 2010. January’s production fell a record 4.5 per cent to 35.9mn kg compared with January 2010’s output on account of the hot, dry weather conditions.

Sales of tea at the weekly auction held in the Kenyan port city of Mombasa fell 7 per cent to 87.9mn kgs in the first quarter of this year, Mombasa-based African Tea Brokers (ATB) said 12 April. The volumes offered to the auction, which also handles sales of tea produced by neighbouring countries, were reduced due to the adverse weather. But lower offtake by key buyer Egypt (the leading export destination for Kenyan tea last year) was a major factor.

Over the past month, however, increased buying activity from Egypt as well as other key buyers such as Afghanistan, and the UK, among others, combined with the reduced supply of tea, have put pressure on prices.  The average price of the top grade of  Kenyan tea rose for a fourth straight week to $3.54 per kg at the most recent Mombasa auction, held 12 April, from $3.50 a week earlier, ATB reported.

Best Broken Pekoe Ones (BP1s) sold for $4.08-$3.00 per kg at the most recent auction, compared with $3.90-$3.10 at the previous week’s week's sale and  $3.00-$3.40  a kg a month earlier. Best Pekoe Fanning Ones (PFIs) fetched $3.52-$3.14 per kg, compared with $3.30-$2.97 a kg the previous week and $3.02-$3.59 per kg a month earlier, according to ATB.

Copper under pressure

Copper prices have come under pressure amid renewed concerns about rising inflation pressures in leading consumer country China, and its impact on demand for the red metal. Chinese annual inflation accelerated to 5.4 per cent in March, a 32-month high, local media reported. With the inflation expectations running well above the Chinese authorities’ 4 per cent target, there are expectations that China will move to implement an additional round of fiscal tightening.

Exacerbating worries about Chinese demand, inventories of copper in London Metal Exchange (LME) warehouses continue to rise; stocks stood at 450,800 tonnes on 14 April, their highest level since late June last year, data showed.

More pressure on copper also came after rating agency S&P revised the rating outlook for the US, the world’s largest economy, to negative.

Amid all this bearish sentiment, three-month copper on the LME by 18 April had falled to its lowest point since 5 April, hitting $9,280 a tonne.

In contrast, gold recorded another record high in April, reaching an all-time peak of $1,486.07 a troy ounce on a spot basis on 15 April. Investors have continued to pile into the precious metal which is seen as a safe-haven in uncertain economic times. The ongoing European sovereign debt concerns together with the inflationary price pressures coming from China and the US are driving investors into gold as an inflation hedge. The precious metal hit its latest highs after China reported the country’s inflation had jumped to a 32-month high in March.

A number of analysts now see every likelihood of gold moving past $1,600 a troy ounce in the coming months.