Softs - sugar gains on Brazil crop woes; coffee, cotton lower

Investing.com - U.S. soft futures were mixed during early U.S. morning trade on Monday, with sugar prices firming on the back of concerns over a disruption to supplies from top grower Brazil.

On the ICE Futures U.S. Exchange, sugar futures for October delivery traded at USD0.1993 a pound, climbing 0.95%. It earlier rose by as much as 1.3% to trade at a session high of USD0.2002 a pound.

Prices touched a two-month high of USD0.2179 a pound on June 21, as concerns that heavy rains in Brazil could damage sugarcane crops in the country’s center-south region boosted sentiment on the sweetener.

The nation’s leading sugar cane industry association Unica said last week that mills in the center-south crushed 35.62 million metric tons of cane in the second half of last month, down 18% from a year earlier.

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.

Market participants noted that the sugar market remains in a major bear trend. Prices are down approximately 45% since hitting a three-decade high of USD0.3594 in February of last year.

Meanwhile, cotton and coffee prices came under pressure from a stronger U.S. dollar and broader market risk aversion, as fears over a slowdown in global growth and worries over the ongoing sovereign debt crisis in the euro zone weighed on appetite for riskier assets.

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

Market sentiment soured ahead of a European Union summit due to begin later in the week, amid growing doubts over whether leaders will make any progress towards greater fiscal integration and allowing the bloc's rescue funds to buy government debt.

Earlier Monday, Spain’s government formally requested aid of up to EUR100 billion for its banking sector from its euro zone partners. Spain’s economy minister said the amount should be enough to cover the needs of all banks and provide an additional security buffer.

The request came after the results of an independent audit last week indicated that Madrid would need a rescue package of as much as EUR62 billion to bailout its banks.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.5% to trade at 82.82, the highest since June 13.

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

Cotton futures for October delivery traded at USD0.6900 a pound, shedding 0.45%. It earlier fell by as much as 0.8% to trade at a session low of USD0.6877 a pound. Front-month prices slumped to a 32-month low of USD0.6617 a pound on June 4.

Cotton traders were awaiting the release of the USDA’s weekly crop progress report due out after Monday’s closing bell.

In its last crop condition report, the USDA said 53% of the cotton crop was in good-to-excellent condition, up from 51% the previous week.

Meanwhile, prices continued to find some support ahead of the expiration of the front-month July contract.

Trading is normally intense in the cotton market in the run-up to the first notice day for deliveries, as most market participants seek to exit contracts to avoid having to deliver supplies.

Despite the recent gains, the fiber is still down almost 65% from a record in March 2011 as higher prices prompted farmers to plant more crops and demand in top consumer China slowed.

Meanwhile, Arabica coffee for September delivery traded at USD1.5535 a pound, dipping 0.3%. It earlier fell by as much as 1% to trade at a session low of USD1.5412.

Coffee fell to as low as USD1.4887 a pound on June 14, the lowest for the second-month contract since mid-June 2010, as the market moved lower ahead of the harvest from Brazil.

But market analysts have noted that the approaching frost season in Brazil should limit any potential downside in coffee in the near-term.

Coffee prices have been under pressure in recent months, losing nearly 35% 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.