Softs- sugar, coffee higher; consolidate above 21-month lows

Investing.com - U.S. soft futures were higher during early U.S. morning trade on Tuesday, consolidating above last week’s multi-month lows following a long holiday weekend, though traders remained jittery amid concerns over the outlook for the euro zone and the global economy.

Farm commodities shrugged off jitters stemming from sustained fears over the health of Spain’s banking sector and the effects rising borrowing costs will have on the euro zone’s fourth largest economy.

Instead, traders returned to the market to seek cheap valuations following last week’s sell-off. U.S. soft commodity markets were shut Monday for the Memorial Day holiday.

On the ICE Futures U.S. Exchange, sugar futures for July delivery traded at USD0.1975 a pound, gaining 0.7%. It earlier rose by as much as 0.85% to trade at a session high of USD0.1982 a pound.

Prices fell to as low as USD0.1936 a pound on May 23, the lowest since August 27, 2010.

Analysts at commodity trading house Barclays Capital said that Asian and Chinese restocking of sugar spurred by low prices had provided a temporary floor to the market.

However, prices are expected to remain under pressure by a global surplus and the prospect of a large Brazilian harvest.

Swiss-based industry group Kingsman echoed that sentiment, saying global prices of raw sugar will likely continue to slide in coming months as a weaker Brazilian real becomes the "biggest new factor" weighing on prices.

Despite the upward move, sugar traders were weary of pushing prices above the key psychologically level of USD0.20-a-pound, pressured by expectations for a big global surplus.

Sugar prices have been under pressure in recent weeks, losing nearly 26% since March 20, as increasing competition for U.S. exports and ample global supplies have been dominating sentiment.

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.

Elsewhere on the ICE Futures U.S. Exchange, Arabica coffee for July delivery traded at USD1.6860 a pound, adding 0.55%. It earlier rose by as much as 0.65% to hit a session high of USD1.6928 a pound.

Coffee prices plunged to as low as USD1.6515 a pound on May 23, the lowest since August 27, 2010.

Coffee prices have been under pressure in recent months, losing nearly 28% since mid-January as traders eyed a huge harvest in top grower Brazil and speculators pushed prices lower.  

Brazil is the world's largest producer and exporter of Arabica coffee.

Analysts at BarCap said that Arabica prices were likely to remain weak in the near-term due to expectations for an ample Brazilian harvest.

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

Meanwhile, cotton futures for July delivery traded at USD0.7394 a pound, gaining 0.45%. It earlier rose by as much as 1.15% to trade at a daily high of USD0.7422 a pound.

Cotton prices slumped to USD0.7058 a pound on May 23, the lowest since February 2010, as speculative selling weighed.

Cotton traders were looking forward to the USDA’s weekly planting progress report due out after Tuesday’s closing bell.

Last week’s report showed that nearly 48% of the cotton crop was planted in top-grower Texas, up from 35% the previous week and above the five-year average of 41% for this time of year.

The report comes out a day later than usual due to the U.S. Memorial Day holiday on Monday.

The U.S. is the world’s biggest exporter of cotton and the third largest producer of the fiber, trailing only China and India.

The fiber has plunged almost 65% from a record in March 2011 as higher prices prompted farmers to plant more crops and demand in top consumer China slowed.