Cocoa Rises in London, Heads for Weekly Gain, on Higher Crude

By Rachel Graham

Aug. 29 (Bloomberg) -- Cocoa rose in London, heading for its second weekly gain, as higher crude-oil prices spurred demand for other commodities. Coffee rose and sugar fell.

Crude oil rose as producers evacuated rigs before the arrival of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.

``Oil is driving the direction for the agricultural commodities at the moment,'' Jonathan Parkman, farm commodities chief at Fortis, said by phone today in London.

Cocoa for September delivery gained 33 pounds, or 2.1 percent, to $1,626 pounds ($2,983) a ton on London's Liffe exchange. A close at that level would mean a gain this week of 4.4 percent, and an increase for the month of 7.1 percent. The chocolate ingredient has climbed 56 percent this year.

Higher prices may force food companies to switch to cheaper substitutes, according to the Hightower Report, a Chicago-based research company.

``The most significant concern we have for prices is the move to substitute vegetable fats for more expensive cocoa butter in some chocolate products,'' it said in a note.

White, or refined sugar, for October fell $3.70, or 0.9 percent, to $405.30 a ton in London. Raw sugar for October fell 0.07 cent, or 0.5 percent, to 13.16 cents a pound on ICE Futures U.S., the former New York Board of Trade.

The October contract traded in New York may fall to $12.50 a pound as the market is oversupplied, David Sadler, head of sugar trading at Sucden (U.K.) Ltd., said by phone from London.

Argentine Supply

``There are 200,000 tons of Argentine sugar available for delivery in October,'' he said. ``The Russians don't need anything until November. They are in the middle of their beet harvest.''

The International Sugar Organization said yesterday it expects a surplus in global production this year of 7.25 million tons, roughly 4 percent of total output. It forecasts a deficit of 3.9 million tons the following year ending Sept. 30, 2009.

Among other agricultural commodities traded in London, robusta coffee for November delivery gained $25, or 1.1 percent, to $2,336 a ton.

To contact the reporter on this story: Rachel Graham in London rgraham13@bloomberg.net.