Cotton rises to 3-week high ahead of USDA; sugar gains


Forexpros – U.S. soft futures were higher during early U.S. morning hours on Tuesday, with cotton prices rising to a three-week high ahead of a closely-watched U.S. government report on U.S. and global fiber supplies.

Meanwhile, sugar futures also rose to a three-week top on the back of ongoing concerns over adverse weather conditions in top grower Brazil, while coffee futures consolidated above the previous session’s two-year low.

Farm commodities were supported by a broadly weaker U.S. dollar, as the recent announcement of a European bailout for Spain moderately supported investor confidence, although uncertainty over the outcome of Greece’s Sunday elections weighed.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.2% to trade at 82.89.

A weaker dollar boosts the appeal of U.S. crops to overseas buyers and makes commodities more attractive as an alternative investment.

On the ICE Futures U.S. Exchange, cotton futures for July delivery traded at USD0.7547 a pound, gaining 0.5%. It earlier rose by as much as 0.95% to trade at USD0.7577 a pound, the highest since May 22.

Cotton prices have been on an uptrend in recent sessions, gaining nearly 12.5% since slumping to a 32-month low of USD0.6617 a pound on June 4.

Cotton’s short-term price volatility has mostly been dominated by speculative traders. The fiber surged last week, boosted in part by short covering after futures moved into oversold territory.

The fiber lost nearly 25% in May, as large hedge funds liquidated positions and speculators pushed prices lower amid concerns over the global economic outlook.

Cotton traders shifted their attention to Tuesday’s monthly supply and demand report from the U.S. Department of Agriculture, to see whether the agency lowers its estimate on world 2012-13 cotton ending stocks.

Last month, the USDA pegged stocks at a record 73.75 million bales.

Cotton prices found additional support after the USDA said in its weekly crop progress report published after Monday’s closing bell that nearly 51% of the crop was rated in ‘good’ to ‘excellent’ condition as of June 10, down from 54% a week earlier.

In the major producing state of Texas, the proportion seen as in ‘good’ or ‘excellent’ health fell to 40% from 47% a week earlier.

Meanwhile, sugar futures for July delivery traded at USD0.2057 a pound, climbing 0.85%. It earlier rose by as much as 0.95% to trade at USD0.2059, the highest since May 18.

Sugar prices have gained more than 8% since dropping to a two-year low of USD0.1886 a pound on June 4, as concerns that heavy rains in Brazil could damage sugarcane crops in the country’s center-south region boosted sentiment on the sweetener.

Brazil’s Center South-region produces nearly 90% of the nation’s sugar. Brazil is the world’s largest sugar producer and exporter, with the USDA estimating the nation accounts for nearly 20% of global production and 39% of global sugar exports.

Strong demand on the physical market ahead of the Muslim fasting month of Ramadan lent further support.

Despite the recent gains, prices are down approximately 42% since hitting a three-decade high of USD0.3594 in February of last year.

Elsewhere on the ICE Futures U.S. Exchange, Arabica coffee for July delivery traded at USD1.5505 a pound, gaining 0.55%. It earlier rose by as much as 0.75% to trade at a session high of USD1.5543.

Coffee prices plunged to as low as USD1.5377 a pound on Monday, the lowest since mid-2010.

Coffee pushed higher after market participants returned to the market to seek cheap valuations after moving into ‘oversold’ territory.

Coffee prices have been under pressure in recent months, losing nearly 34% since mid-January as traders eyed a huge harvest in top grower Brazil and speculators pushed prices lower.

Market participants said that coffee prices remain vulnerable to losses as hedge funds and large institutional investors liquidate long positions amid concerns over the global macroeconomic outlook.

Jitters over the global economic outlook have weighed on soft commodities in recent weeks.