Soft futures edge higher, sugar on one-week high amid unfavorable weather conditions in Brazil

Soft futures gained throughout Thursday with sugar hitting a one-week high, while arabica coffee advanced to the highest level since May 20.

On the ICE Futures U.S. Exchange, sugar futures for October delivery traded at $0.1628 per pound at 12:30 GMT, up 1.24% on the day. Prices held in range between days high at $0.1629, the highest since July 11, and low of $0.1607. The sweetener surged 0.6% on Wednesday, extending the current weeks advance to over 1.1%.

Sugar was supported on Thursday as the real advanced following Bernankes testimony to Congress yesterday and unfavorable weather for crop developing threatened output prospects. A stronger local currency reduces domestic productions competitive advantages on the international markets as it makes the production more expensive for foreign currency holders. Brazil accounts for 20% of global sugar output and 39% of global exports.

Meanwhile, weather forecaster Somar Meteorologia said on July 15 that a cold front will bring rain to some of Brazils sugar-cane growing areas, reducing the crops potential to yield sugar. The Brazilian industry group Unica already trimmed its production forecast for the 2013-2014 season, which started in April, down to 34.1 million tons from 35.5 million.

Fabienne Pointier, an analyst at Lausanne, Switzerland-based researcher Kingsman SA, said for Bloomberg: “It looks like speculators are covering their shorts before rain that may disrupt harvesting in Brazil’s center south. Unica has already cut their forecast for sugar production.”

The sweetener hit a three-year low of $0.1594 a pound on Tuesday but rebounded after Unica trimmed its crop output forecast. Meanwhile, Indonesia, the world’s second biggest importer, may purchase 16% more raw sugar this year in order to meet rising domestic consumption.

Coffee advances

Meanwhile, arabica coffee surged more than 4% on the day, hitting the highest level since May 20 as cold weather in the beans top grower Brazil threatened to deal frost damage to the crop.

On the ICE Futures U.S. Exchange, arabica for September delivery traded at $1.3295 a pound at 12:32 GMT, up 4.50% on the day. Prices held in a wide range between days high at $1.3350, the highest since May 20, and low of $1.2755, the opening price. The C contract gained throughout the week, extending its weekly advance to more than 11.60% so far after declining 1.33% the previous one.

Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report today: “Fears of frost damage have caused the arabica coffee price to climb. According to the weather forecasts, temperatures in the Brazilian coffee plantations could drop to zero in the coming week.”

Meanwhile, robusta coffee also gained on the day. On the NYSE Liffe in London, robusta for September delivery traded at $1 989 a ton at 12:34 GMT, up 1.90% for the day. Prices ranged between daily high and low of $1 993 and $1 944 a ton respectively. Futures marked daily gains throughout the week, extending this weeks advance to 6.2%.

The coffee sort was supported recently as farmers in top grower Vietnam continued to hold back supplies amid rising local prices, which were the highest since May 28 on Monday. Vietnamese shipments plunged by 37% on the year to 88 397 tons in June. Meanwhile, deliveries from Indonesia, the third biggest producer, slid 28% compared to last year as wet weather delayed bean-drying.

Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in a report on Tuesday: “The difficulty moving production in Indonesia is compounding the problem caused by slow Vietnamese movements.”

Cotton gains

Cotton also advanced on the day, gaining 0.67% by 12:23 GMT. Cotton for December delivery traded at $0.8423 a pound, ranging between days high and low of $0.8427 and $0.8369 respectively. The fiber plunged in the past two days, extending this weeks decline to over 1% as concerns over U.S. crop prospects eased.

In its weekly crop progress report on Monday, the USDA said cotton squaring fell behind last year’s pace but made a significant advance from the preceding week. As of July 14, 69% of the crop was squared, up from the previous week’s 51%. This however underperformed last year’s 80% during the comparable week and the five-year average of 75%.

Cocoa advances

Elsewhere on the ICE, cocoa futures for September delivery also edged higher, surging to $2 312.50 a ton at 12:27 GMT, up 0.50% on the day. Prices ranged between days high and low of $2 324.50 and $2 297.00 respectively.
Cocoa gained throughout the week and is marking an over 3.3% weekly advance so far amid concern the main-crop in Ivory Coast and Ghana will probably be delayed due to dry weather and a large mid-crop, the first annual one. Eric Sivry, head of agriculture options brokerage at Marex Spectron, said in a report on Tuesday: “One aspect is relatively clear now to happen. We should see a delayed start of the next harvest.”