Cocoa sinks 3.6 percent

US cocoa futures sank 3.6 percent on Tuesday, in their steepest fall in two months, after Greece's shock decision to hold a referendum on its bailout package threatened to intensify the eurozone crisis. Sugar and arabica coffee futures also fell, while robusta coffee trading on Liffe was firm.
"There seems to be uncertainty at every turn with the fear of a catastrophic euro collapse heightening up, with the now possible exit of the Greeks perhaps prompting the Italians down the line," said Thomas Kujawa at Sucden Financial. US cocoa futures took the biggest hit on the softs complex as options dealings, ahead of the December options expiry on Friday, added more weight to the market. Open interest in options has been at record highs for weeks, reaching nearly 134,900 lots last week, ICE data showed.
ICE December cocoa tumbled $96, or 3.6 percent, to finish at $2,600 a tonne, its biggest one-day drop since September 6. "We've got these options expiring on Friday, with the desire to keep December around $2,600, $2,700, this is where you have more of your short positions," one veteran cocoa dealer in New York said.
"Open interest in cocoa is very big. I think that's the result of industry selling a lot of puts, and then they own futures down here because the puts are in the money." Liffe March cocoa fell 44 pounds, or 2.6 percent, to end at 1,654 pounds a tonne, the second position's weakest settlement since July 2009.
"You have all the West African hedge flow coming, that's why all the funds are short, they expect that to weigh on the market," a London-based broker said. Raw sugar futures slid along with the rest of the softs complex, edging up briefly on short-covering by small investors and on concerns that floods in Thailand could delay the cane harvest, along with uncertainty over exports from key producer India. The focus at this time is on the rescue deal that is possibly unravelling in Europe and the wreckage from MF Global's bankruptcy, analysts said.
ICE March raw sugar futures fell 0.43 cent, or 1.7 percent, to end at 25.34 cents a lb. December white sugar futures on Liffe fell $9.20, or 1.3 percent, to close at $680.40 per tonne. Arabica coffee futures were also lower, with weaker outside markets including stocks and oil dragging on prices. December arabica coffee futures on ICE closed down 3.30 cents, or 1.5 percent, at $2.2365 per lb. Robusta coffee prices reversed earlier losses to trade higher, with gains capped by the imminent harvest in top producer Vietnam. January robusta coffee on Liffe closed up $56, or 3.1 percent, at $1,878 a tonne.