Cocoa, Sugar Flogged by Markets

NEW YORK ( TheStreet) -- Cocoa, cotton and sugar prices were diving along with the broader markets following an unexpected acceleration in initial jobless claims.

Sugar for July delivery was down 2.4% to 20.83 cents a pound, cotton for July delivery was losing 4.5% to $1.4475 a pound and July cocoa futures were surrendering 4.6% to $3,064 a metric ton.

"The raw sugar #11 price in New York has dropped 35% since February 28 and speculators have reduced their net long position by a quarter as global fundamentals have shifted from a perceived deficit to a short term surplus due to a larger-than-expected Thai harvest," Rabobank agricultural commodity analysts say.

Analysts Luke Chandler, Keith Flury and Erin FitzPatrick noted that this quick adjustment triggered speculative investors to liquidate contracts. Meanwhile, managed money net long positions in New York sugar futures has fallen to a two-year low. Some expect the selling to continue, they noted.

Still, the analysts believe that the market has priced in the fundamental situation, taking off much of the risk premium associated with the new season's crop.

Food giant General Mills ( GIS) was down 0.6% to $38.60, while peer Kellogg Company ( K) was up 0.3% to $56.90.

Cocoa was falling as modest volumes of the beans begin exporting from the Ivory Coast after a fourth-month political standoff in the country ended in April.

Still, mid-crop harvests remain a concern due to security issues. The main crop is also in focus due to weather concerns, according to the Rabobank analysts. Furthermore, "the domestic financial sector of the Ivory Coast is still not up to previous levels, suggesting credit during the mid crop could be an issue." The analysts note that cocoa prices are up 13% since the start of April due to bargain hunting and end-user buying.

Ghana's state cocoa buyer says that purchases to April 14 have risen 49% from the previous season amid an exceptional crop season, though according to Rabobank, much of the increase in bean availability may be attributable to smuggling from the Ivory Coast. The Rabobank report also said that Indonesia exports of the goods fell 86% in April, as an export tax, which was raised to 15%, crimped shipments. In May, the tax will fall to 10%, which may spur more exports, the report said.

Chocolate play Hershey ( HSY) was down 0.5% to $56.43, while peer Kraft ( KFT) was rising 0.2% to $33.91. Magnum chocolate maker Unilever ( UL) was falling 1.5% to $32.14.

Cotton continued to drop on concerns of weak physical demand out of Asia, particularly China, the world's leading cotton importer, amid fears over further monetary tightening.

"Traders are also reminded that China's Weiqiao Textile Co., the world's largest yarn maker, continues to back off the price they are willing to pay for raw cotton," says cotton industry expert Mike Stevens.

"Growing inventories and stagnate yarn sales damper the market."

Apparel stock Aeropostale ( ARO) was plunging 14.9% to $21.70, while specialty apparel retailer Limited Brands ( LTD) was losing 0.3% to $40.20.

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-- Written by Andrea Tse in New York.

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