LONDON: World arabica prices headed sharply lower on Tuesday, following a stellar rally that saw them clock their fourth-largest daily gain on record in the prior session. Cocoa prices fell meanwhile, having earlier extended their Monday rally to hit fresh six-month highs.
Soft commodities such as cocoa, coffee and sugar are being driven by fears the current El Nino weather pattern is set to morph into a strong or potentially very strong occurrence, causing climate havoc in key growing regions.
Dealers, however, said Monday’s 16 percent gain in New York arabica futures was exaggerated by speculators playing catch up as US markets were closed Friday on account of the Independence Day holiday.
The buying by speculators, they said, spurred technical signals that in turn prompted even more buying.
“It was speculator driven. Everyone has known about El Nino for months now,” said an analyst at a global commodities trade house.
By 1308 GMT on Tuesday, ICE exchange traded New York arabica was down 6 percent at USD3.2895 per lb, some way off Monday’s six-month peak of USD3.57. London robusta coffee was down 2 percent at USD3,959 a metric ton, having gained 8.8 percent on Monday.
The United Nations weather agency raised its El Nino forecast to “strong” on Friday and warned it could further revise it to “very strong”.
El Nino is especially problematic for robusta coffee as it typically brings higher temperatures and reduced rainfall to top grower Vietnam and No. 3 grower Indonesia. In top arabica grower Brazil, it tends to cause excess rains that disrupt the harvest.
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