Arabica coffee futures on ICE sank 4 percent to their lowest level in more than 1-1/2 years on Thursday, as funds sold on top grower Brazil's tumbling currency, while raw sugar also felt currency pressure but held within the prior session's range. Cocoa markets were mixed after rising to seven-week highs and becoming technically overbought.
The Brazilian real slid to its lowest level in nearly 13 years after Standard & Poor's cut the country's credit rating to junk status. Brazil is also the world's top producer of sugar.
"It's very heavily tied into the macro picture with the Brazilian bonds reduced to junk status by S&P that basically had a negative impact on the real," said Bob Phillips, president of green coffee importer Caturra Coffee Corp in Elmsford, New York. "I think this is a reaction to that whole situation."
Phillips said the move lower appeared to be led by fund selling rather than by producers, who can benefit from the weak currency. December arabica coffee settled down 4.7 cents, or 3.9 percent, at $1.164 per lb, having touched a low of $1.1625, the weakest level for the second month since January 2014. "Structural Brazilian real weakness is a negative short-term headwind for soft commodity prices, particularly arabica coffee, sugar and soybeans," said Citi Research in a note.
"The (Brazilian real) downgrade arrives amid what has already been a bearish and loose supply/demand fundamental outlook for the global agriculture sector throughout most of the 2014/15 cycle, exacerbating the soft commodity selloff." Expectations for rains in Brazil to induce flowering also weighed on coffee prices, traders said. Robusta coffee futures also fell, with November settled down $38, or 2.4 percent, at $1,566 per tonne.
Sugar futures were also pressured by Brazil's weak currency, helping to push the whites-over-raws premium to a three-month low. October raw sugar settled down 0.1 cent, or 0.9 percent, at 11.33 cents per lb. October/March spreading buoyed volume. Platts' Kingsman sharply raised its 2015/16 world sugar supply deficit forecast to 1.2 million tonnes.
October whites settled down $7.10, or 2.1 percent, at $338.90 per tonne, falling to the biggest discount to the second position in six months ahead of its expiry next week. December New York cocoa settled up $6, or 0.2 percent, at $3,276 per tonne, while London December cocoa ended down 7 pounds, or 0.3 percent, at 2,197 pounds a tonne, after both contracts tapped seven-week highs.
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