SOFTS-Raw sugar futures down sharply on demand concerns

Published: 08 Mar 2010 09:10:19 PST

* Robusta coffee sets new contract lows, system funds short

* Egypt buys raw sugar but more physical offtake needed

LONDON, March 8 - Raw sugar futures on ICE fell sharply on Monday, weighed by talk that investment funds were starting to establish short positions and concerns that high prices seen earlier this year had led to demand destruction.

Robusta coffee futures weakened, with contract lows set in key positions, as the pressure on Vietnamese producers to sell increased and roasters appeared to be well covered, while cocoa was also in negative territory.

Dealers said fund liquidation of long positions had helped to fuel a sharp setback in raw sugar prices during the last month and some now appear to be going short.

"I'm hearing some of the funds are taking new short positions. If that is the case you could see this market come off a bit more," one London dealer said.

Dealers said there was also heavy buying of put options on May raws at strike prices well below current prices, indicating some believed there was scope for prices to fall further.

Dealers said the market was also depressed by talk there could have been significant demand destruction in India and Pakistan when prices soared earlier this year.

They noted the market was keenly waiting to see if there was a revival in physical purchases by major consumers following the sharp drop in sugar prices.

They noted Egypt's state-owned Sugar and Integrated Industries Company (SIIC) said on Monday it bought 90,000 tonnes of raw Brazilian sugar for arrival in August or September.

"We need to see more of this (physical purchase)," said David Sadler, a senior sugar futures trader, adding he believed recent high prices may have led to demand destruction in India and Pakistan.

May raw sugar futures on ICE fell 0.90 cents or 4.06 percent to 21.29 cents a lb by 1645 GMT with the front month losing nearly 30 percent of its value after soaring to a 29-year high of 30.40 cents in early February.

The contract dipped to 21.12 cents early last week, its lowest level since late November 2009, before rebounding.

May white sugar on Liffe fell $21.50 or 3.53 percent to $588.00 per tonne.

RELENTLESS DECLINE

Robusta coffee futures on Liffe fell with prices now at the lowest levels since major revisions were made to the contract in January 2008.

"It is just a relentless trend. It struggles to find any buying," one dealer said, noting there was little interest from managed money and roasters had sufficient cover and were content to sit back and watch prices fall.

Farmers in top robusta producer Vietnam had been reluctant to sell following the steady decline in prices but may eventually have to sell.

"They (Vietnamese producers) have succumbed to the temptation to try and ride it out but for the time being it (the market) is going against them," one dealer said.

Dealers said system funds remained short.

"It is going their way so they (system funds) are happy to sit with it (their short position)," one dealer said.

May robustas stood $6 or 0.5 percent lower at $1,226 after setting a contract low of $1,217.

Arabica futures on ICE edged up with May 0.35 cent or 0.3 percent higher at $1.3075 per lb.

Cocoa futures were lower with an improving outlook for the mid-crop in Ivory Coast and Ghana keeping prices under pressure.

May cocoa in London fell 11 pounds or 0.51 percent to 2,165 pounds a tonne while May cocoa on ICE dipped $36 or 1.26 percent to $2,829 a tonne.

Cocoa arrivals at ports in top grower Ivory Coast reached around 860,000 tonnes by March 7, exporters estimated on Monday, compared with 839,463 tonnes in the same period of the previous season.