Sugar prices in New York settled close to two-and-a-half-year lows on Tuesday as speculative investors and traders continued to sell sweetener amid concerns about a growing surplus following forecasts of a record crop from Brazil, the world's biggest producer, in 2013/14.
Coffee and cocoa prices put in their weakest one-day performance in more than two months as investors locked in profits after their brief rally last week.
Raw sugar futures remained under pressure, with March settling down 0.25 cent or 1.36 percent at 18.12 cents per lb, its lowest level for the front month since Aug. 10, 2010.
Dealers and analysts said both the technical and fundamental outlooks for the market were bearish, with a break below 18.25 cents likely to trigger further losses. Prices could fall "all the way to around 18 cents," said VTB Capital analyst Andrey Kryuchenkov.
As top producer Brazil's cane crush nears completion, focus has shifted to the coming crop, which is expected to surpass a bumper 2012/13 crush. Recent heavier-than-usual rains helped the sugarcane crop while demand remains lackluster.
Unica, the country's sugar association, forecast an increase in output of 10 percent to a fresh record in 2013/14.
As a result, traders and speculative investors have added new shorts. On Friday, open interest, the number of outstanding contracts, rose above 810,000 lots, its highest level since February 2010, according to ICE data.
"The market appears to be getting used to a large fund net short and, most likely, the short is even larger by now," said Michael McDougall, a vice president at Newedge USA in New York.
March white sugar on Liffe closed down $6.6 or 1.34 percent at $483.2 per tonne, the lowest level for the front month since June 2010.
COFFEE, COCOA DOWN
Business was brisk with volumes in cocoa and coffee double their 30-day average after markets reopened following the long holiday weekend in the United States.
Arabica coffee futures fell from two-and-a-half month highs close to the $1.58 per lb it hit on Friday.
"There's a bit of profit-taking, a snowball effect as we start the week," said Hector Galvan, senior market strategist for RJO Futures in Chicago.
"The news isn't there as it was last week to keep investors on their toes, buying consistently," Galvan said.
He was referring to fears about crops in Central America, producer of a fifth of the world's arabica, where a tree-killing fungus known as roya is reducing yields.
March arabica futures traded down 7.7 cents or 4.93 percent to settle at $1.486 per lb. That was the front month's biggest one-day fall since Nov. 20.
Top producers Brazil and Vietnam still have a lot of coffee to sell, a broker in London said.
Dealers noted the potential for further short-covering gains as farmers in Central America struggle to control the fungus, which is spread by the wind.
March robusta coffee futures closed down $32 or 1.62 percent at $1,938 a tonne with the market digesting gains after peaking at $1,989 on Friday, the highest level for the second position since Nov. 2.
Cocoa futures on ICE fell their most in three months in a correction after hitting a one-month high on Friday.
The market also digested the results of a Reuters poll, which said prices are expected to remain under pressure in the first quarter due to plentiful supplies.
In the longer term, chocolate makers will start to replenish stocks, having worked through their surplus inventory. Combined with a potential drop in output from West Africa, the world's main growing region, the market will swing into a deficit.
"In the near term, those deficits aren't being seen. That's one big reason you can't get this market to sustain prices at or above $2,300 (per tonne)," said Galvan.
March cocoa futures on ICE settled down $73 or 3.15 percent at $2,213 per tonne.
As expected, grindings in Asia, where an emerging middle class is eating more chocolate treats, rose 2.8 percent to 155,237 tonnes in the fourth quarter of 2012.
The region has been a pocket of strength while demand in more mature economies of North America and Europe has flatlined.
May cocoa futures on Liffe fell 32 pounds or 2.2 percent to settle 1,448 pounds a tonne.