KEY POINTS:
London robusta coffee futures hit a nine-and-a-half year high and cocoa reached a four-year peak at the weekend on a wave of enthusiasm among investment funds for all sorts of commodities.
Reallocation of investments for the new year has already seen several basic resource prices, including gold and
oil, hit record highs this month and soft commodities such as coffee and cocoa have been tipped as a good bet for the year ahead.
"Funds are increasing their holding in both commodities at the moment. It is not an overnight thing, I think it has been building for some time," soft commodities trader Jeff Cooper, of Ambrian Commodities, said.
Cooper said such factors as growing demand from China and India, potential crop problems linked to global warming and world population growth had all helped generate bullish sentiment about commodities.
Broader financial market fundamentals have also come into focus, as investors grapple with the fallout of a global credit crunch that started last year and has affected many other asset classes such as stocks.
"There's no doubt that the macro guys are pulling money out of some of the underperforming assets from last year like stocks, allocating a bit more to bonds and definitely allocating a larger percentage to commodities," said Lars Steffensen at Ebullio Capital Management.
"Even a 1 or 2 per cent shift into commodities is massive in pure dollar terms," he said.
March robusta coffee futures in London rose to a peak of US$2041 ($2598) a tonne, up US$27 and the highest level for the second month since May 1998. The contract has risen around US$300 since early December.
"Funds hold 25 per cent of world production and currently appear to have an insatiable appetite for softs in general," broker Sucden UK said in a daily coffee market report.
CoffeeNetwork analyst Andrea Thompson said the coffee market was moving into uncharted territory. "Fundamentals are out of the window to be honest," she said, adding prices were rising at a time when the flow of coffee from producers such as Vietnam was picking up and India was starting to harvest its crop.
She noted, however, that the market was much more balanced then a few years ago when a rapid rise in Vietnamese production left the market struggling to cope with a large global surplus.
London cocoa futures have also climbed with May rising £14 ($35) to a peak of £1157 a tonne on Friday, its highest level since August 2003.
White sugar prices rose to a seven-month high last week but have lagged behind coffee and cocoa, weighed down by a supply surplus.
- Reuters
