Cocoa eased as dealers eyed a widening front-month premium in London while raw sugar futures on ICE also fell as the prospect of a large global surplus in 2012/13 kept the market on the defensive.
The Thomson Reuters-Jefferies CRB index, a benchmark for global commodities eased 0.4 percent as the US dollar rose against the euro after a government report showed US employment grew more than expected in November. Also weighing on the commodity complex were Europe's economic problems and uncertainty about budget discussions in the United States. March arabica coffee futures closed up 2.90 cents, or 1.9 percent, at $1.5385 per lb, rebounding from a two-and-a-half-year low of $1.4635 touched Wednesday.
"That indicates you could very well have a bottom here in the coffee market," said Spencer Patton, founder and chief investment officer of Steel Vine Investment in Chicago. The short-covering is believed to be speculative without any fundamental reason, and the bounce is not expected to last long, Patton said.
Though there was a surge in volume during the rally, overall volume was weak, with just over 15,000 lots trading, versus the 250-day average around 22,000 lots, preliminary Thomson Reuters data showed. "It seems to be a get-me-out day in commodities, which for coffee would mean buying," said Jack Scoville, an analyst with The Price Group on Chicago.
The ICE arabica/Liffe robusta spread narrowed enough to attract dealers to buy arabica and sell robusta, Scoville said. The premium of arabica over robusta futures narrowed to around 53 cents per lb in intraday dealings, about a penny cheaper than the previous day's last trade. It later widened out to about 56 cents March robusta coffee on Liffe turned down $7, or 0.4 percent, to settle at $1,904 a tonne. The harvest in Honduras, Central America's biggest coffee grower, has been delayed, raising the premium on beans there and causing physical dealers to cover their short positions on those beans.
Arabica coffee prices have been cut in half during the last 18 months with increasing supplies helping to dampen investor appetite for the commodity. "I don't see $1.50 (a lb) as the end of the potential slide. There is much more coffee coming to the market and $1.50 is still a level at which you can make a profit in Brazil," F.O. Licht analyst Stefan Uhlenbrock said.
Despite it's large harvest, top grower Brazil is likely to ship about 5 million fewer bags of green, unroasted coffee this year than in 2011, the Council of Green Coffee Exporters said on Thursday, citing slower sales and weather-related delays. Cocoa futures were lower with the focus on the recent widening of the front month spread in London. The premium traded at 74 pounds after peaking at more than 80 pounds during the previous session as the open position on December was still well in excess of certified stocks just a few days before Wednesday's expiry.
March cocoa on Liffe inched down 1 pound to finish at 1,546 pounds a tonne while March cocoa on ICE closed down $8, or 0.3 percent, at $2,412 a tonne. Raw sugar futures on ICE were also lower in heavy volume, with the market weighed down by excess supplies. Consultancy Kingsman SA revised up its 2012/13 world sugar surplus estimate to 9.2 million tonnes raw value, citing increased supply from producers including Brazil and China. March raw sugar on ICE settled down 0.15, or 0.8 percent, at 19.21 cents a lb. Total volume exceeded 121,000 lots, up 25 percent from the 250-day average, preliminary Thomson Reuters data showed. March white sugar on Liffe closed down $3.00, or 0.6 percent, at $515.50 per tonne.