NEW YORK/LONDON: ICE arabica coffee futures touched a nearly two-year high on Tuesday before sinking about 4 percent on technical factors, as investment funds heavily scaled back long positions after open interest climbed for 22 consecutive trading sessions.
Robusta coffee followed suit, making its biggest one-day tumble in more than five years, while sugar prices weakened but remained within Monday's range. Cocoa prices were firm. Financial markets were closely watching the US presidential election, with final results expected by Wednesday.
December arabica coffee settled down 6.85 cent, or 3.9 percent, at $1.675 per lb, after peaking at $1.76, the highest for the front month since January 2015. Heavy December/March spreading boosted volume, traders said.
The sharp drop, which dealers viewed as a technical correction, came after total open interest rose for every session for the past month to a record 228,043 contracts on Monday, exchange data showed.
"Once (the funds) stopped buying, they started liquidating and didn't find as much buying below as they thought," said Rodrigo Costa, director of Coffee for Societe Generale in New York.
Dealers noted that the market remained underpinned by low stocks in Brazil and quality concerns. "It has gone up a great deal over the last week or so.
It has got overheated and is just cooling down a bit," one London dealer said, adding investment funds appeared to be taking profits on long positions.
The slump in robusta coffee prices, pressured by the sell-off in arabica, was particularly bearish as global supplies remained tight.
"You would probably think this market would be holding better since you have a deficit on the robusta supply and demand. The specs are really the ones buying it," Costa said.
January robusta coffee settled down $109, or 5 percent, at $2,085 per tonne, retreating from the prior session's two-year high of $2,199 in its biggest one-day drop since July 2011.
Sugar prices also dropped, with March raws ending down 0.3 cent, or 1.4 percent, at 21.97 cents per lb, and December whites closing down $5.40, or 0.9 percent, at $574 per tonne.
New York cocoa futures hovered above the prior session's three-year low, taking a breather after dropping 7.1 percent the past two sessions.
March New York cocoa settled up $20, or 0.8 percent, at $2,465 per tonne. March London cocoa futures settled up 13 pounds, or 0.6 percent, at 2,042 pounds per tonne.
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