World coffee prices plunge as trading remains extremely volatile
LONDON: Coffee prices on the ICE exchange headed sharply lower on Friday, with arabica coffee plunging 8percent as trade remained extremely volatile after the bean clocked its fourth-largest daily price gain on record at the start of the week.
Cocoa prices were also down sharply, though both coffee and the chocolate ingredient were headed for strong weekly gains. Market participants said a rush of speculative money looking for a home hit coffee and cocoa on Monday, tempted also by concerns the El Nino weather pattern will strengthen and lead to increasingly adverse weather in key growing regions.
The ICE exchange then raised its margin or down payment requirements for coffee and cocoa futures contracts, limiting the amount of liquidity in the market and in turn increasing price volatility. “There’s a vacuum of liquidity (and) a lot of these speculators are trading the intraday. They are out by (the market) close,” said a coffee analyst at a multinational agri-commodities trade house. At 1304 GMT, ICE arabica coffee futures plunged 8.2percent to USD319.25 per lb, having closed up 12.3percent on Thursday. The contracts, which skyrocketed 16percent on Monday only to collapse on Tuesday, were still heading for 6percent weekly gains.
ICE robusta coffee futures fell 6percent at USD3,801 a metric ton, but headed for 2percent weekly gains. The US Climate Prediction Center has forecast an 81percent chance of a very strong El Nino during October-December that would rank among the largest El Nino events in the historical record.
Dealers said El Nino-linked excess rains in top grower Brazil had slowed over the past couple of weeks. London cocoa futures plummeted 9.8percent to £4,341 a ton but were heading for 15percent weekly gains after hitting eight-month highs on Thursday, while New York cocoa futures plunged 9.2percent to USD5,858 a ton. El Nino is especially worrisome for cocoa as it disrupts weather patterns in No. 3 grower Ecuador as well as in West Africa, where some 70percent of the world’s chocolate ingredient is grown.
Cocoa futures nearly tripled in 2024 after the West African harvest failed amid an El Nino weather pattern that ran from mid-2023 to mid-2024 and was considered a moderate-to-strong occurrence. “Cocoa market appears to be unstoppable this week against a backdrop of poor pod counts and El Niño,” said a dealer.
He added, however, that the rally has been “dominated by speculative activity”. In other soft commodities traded, raw sugar was down 1.5percent at 14.9 cents per lb, having hit a near two-month high of 15.39 cents on Wednesday, while white sugar fell 1.5percent to USD471.30 a ton.