Forexpros – U.S. soft futures were broadly higher during early U.S. morning trade on Thursday, with cotton and sugar prices rallying sharply after China’s central bank lowered its benchmark interest rate to stimulate growth in the world’s top consumer of both commodities.
Elsewhere, coffee futures continued to consolidate above a two-year low hit earlier in the week.
Farm commodities rallied on Wednesday, boosted by mounting hopes for action by global central banks and other authorities to stimulate growth and boost the world economy.
The soft commodities complex extended gains into Thursday, after the People’s Bank of China unexpectedly announced that it had lowered its benchmark interest rate by 0.25% to 6.31% from 6.66% effective June 8.
It was the first rate cut since December 2008, when the world economy was in the midst of the financial crisis.
Jitters over the global economic outlook have weighed on soft commodities in recent weeks.
Growing expectations the Federal Reserve will consider more action to stimulate growth in the U.S. further supported prices.
Hopes for such action were lifted by comments from Fed Vice chair Janet Yellen, who said in a speech Wednesday that the central bank could further ease monetary conditions in response to ongoing housing problems, a weak jobs market and the escalating euro zone crisis.
Attention now shifts to a Congressional testimony by Federal Reserve Chairman Ben Bernanke later in the day about the state of the U.S. economy. Traders will be looking for any hints that the Fed is considering more monetary stimulus.
The Wall Street Journal, citing interviews and Fed speeches, reported late Tuesday that the Fed was mulling new measures to stimulate growth in the world’s largest economy.
The news prompted investors to pile in to riskier assets, such as stocks and commodities.
On the ICE Futures U.S. Exchange, cotton futures for July delivery traded at USD0.7356 a pound, soaring 5.25%. It earlier rose by as much as 5.5% to trade at USD0.7373 a pound, the highest since May 29.
Cotton prices slumped to USD0.6617 a pound on June 4, the lowest since October 2009.
Cotton prices surged by the most in 14 months on Wednesday, boosted in part by short covering after futures moved into oversold territory.
The fiber lost nearly 25% in May, as large hedge funds liquidated positions and speculators pushed prices lower amid concerns over the global economic outlook.
Meanwhile, sugar futures for July delivery traded at USD0.2032 a pound, rallying 2.15%. It earlier rose by as much as 2.35% to trade at USD0.2036, the highest since May 22.
Prices fell to as low as USD0.1886 a pound on June 4, the lowest since August 17, 2010.
Sugar prices jumped more than 5% on Wednesday on concerns that heavy rains in Brazil could damage sugarcane crops in the country’s center-south region.
Strong demand on the physical market ahead of the Muslim fasting month of Ramadan lent further support.
Technical traders noted that the sugar market remains in a major bear trend. Prices are expected to move even lower in the near-term after breaking below key support levels in recent sessions.
Prices are down approximately 48% since hitting a three-decade high of USD0.3594 in February of last year.
Sugar prices have been under pressure in recent weeks, losing nearly 28% since March 20, as the prospect of a large Brazilian harvest and a higher-than-expected global surplus dragged down prices.
Elsewhere on the ICE Futures U.S. Exchange, Arabica coffee for July delivery traded at USD1.5768 a pound, climbing 1.35%. It earlier rose by as much as 1.65% to trade at a session high of USD1.5807.
Coffee prices plunged to as low as USD1.5485 a pound on June 4, the lowest since mid-2010.
Coffee pushed higher after market participants returned to the market to seek cheap valuations after moving into ‘oversold’ territory.
Coffee prices have been under pressure in recent months, losing nearly 34% 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.
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