Arabica coffee slides after setting more than 2-year high

• March arabica coffee was down 6.3 cents, or 4.5pc, at $1.3265 per lb at 1504 GMT after rising to a peak of $1.4245.
• The magnitude of the earlier rise had caught many other market participants by surprise.
• ICE Futures U.S. increased the hedge initial requirement margin to $4,050, effective from the close of business on Tuesday.

LONDON: Arabica coffee futures on ICE fell sharply on Tuesday after earlier climbing to their highest in more than two years, while raw sugar prices edged higher.

COFFEE

March arabica coffee was down 6.3 cents, or 4.5pc, at $1.3265 per lb at 1504 GMT after rising to a peak of $1.4245, the highest since September 2017.

Dealers said the setback was not unexpected given the extent of recent gains. Prices have risen by about 40pc since mid October.

The sharp advance in prices has caused some stress for producers who had hedged coffee, forcing some to cover short positions in the futures market.

ICE Futures U.S. increased the hedge initial requirement margin to $4,050, effective from the close of business on Tuesday, up 50pc from about $2,700 previously, following recent volatility.

Funds helped to fuel the earlier rally, switching from a net short to a rising net long position.

The magnitude of the earlier rise had caught many other market participants by surprise.

"People don't know what to do," one dealer said, adding thin volumes in the pre-Christmas period were adding to market volatility.

Dealers said the robusta market had failed to keep pace and its discount to arabica had widened significantly.

"If funds were busier in London (robusta) I'm sure we would be a lot higher," one dealer said, adding the hedge selling was helping to keep a lid on prices.

Dealers said shipments from top robusta producer Vietnam were beginning to gather pace following some rain delays to the harvest.

March robusta coffee was down $21, or 1.45pc, at $1,429 a tonne.

SUGAR

March raw sugar rose 0.04 cents, or 0.3pc, to 13.33 cents per lb with the market hovering below last week's more than one-year high of 13.67 cents.

Dealers said funds had now largely covered a net short position and the market's next move might hinge on the extent to which they go long.

They also said mills in Brazil still had a lot of sugar to hedge.

March white sugar rose $1.90, or 0.5pc, to $353.60 a tonne.

COCOA

March New York cocoa was down $19, or 0.75pc, at $2,526 a tonne.

Dealers said an improving crop outlook in top producer Ivory Coast had helped to put the market on the defensive.

Farmers in Ivory Coast's cocoa-growing regions welcomed heavier-than-usual rainfall after weeks of hot and dry weather had threatened the main crop, they told Reuters on Monday.

March London cocoa was up 5 pounds, or 0.3pc, at 1,773 pounds a tonne, underpinned by a weakening pound.

Britain's pound tumbled on Tuesday, erasing its post-election gains, after news that Prime Minister Boris Johnson planned to take a hard line in Brexit talks with the European Union dashed hopes of an end to Brexit uncertainty.