Coffee tumbled around three percent on Wednesday as producer sales sparked wider liquidation including option and fund-related selling, while both sugar and cocoa were little changed. Coffee was the only soft commodity to show any significant falls as liquidity fears resurfaced in other financial markets.
London's benchmark November contract ended down $43 or 2.5 percent, at $1,749 a tonne, having found support at $1,730. The move follows a $37 drop on Tuesday.
"The sellers had their day again today," one dealer said. "There was widespread liquidation across the board." September options expired on Wednesday. Romain Lathiere, fund manager at Swiss-based Diapason Commodities, said sell stops appeared to have been hit on the market's sudden drop lower in the early afternoon.
The market has been increasingly concerned over the speculative long position held in London. With more than 17,000 lots apiece traded on September and November, much of the volume concerned the rolling of positions.
But traders also noted a lack of roaster buying. "Reports that Nestle was fully covered for 2007 may have removed some industry support," one dealer said. He was referring to a Reuters report that the group has already moved to fix many of its 2007 input prices through hedging and is now executing its 2008 hedging strategy.
Fortis said in a report on Tuesday it expected Vietnam's crop next season to be very close to the 2006/07 harvest that is estimated in excess of 20 million bags.
COCOA, SUGAR STEADY:
London cocoa remained listless for much of the session with the benchmark December ending flat at 991 pounds a tonne, holding above Friday's 3-month low of 956 pounds.
"We're lacking fresh news," one dealer said. "We think the range for last week may persist for this week." Fortis on Tuesday raised its estimate for the 2007/08 global cocoa surplus by 6,000 tonnes to 104,000 tonnes.
It said favourable weather and improving political stability in top producer Ivory Coast should help boost supplies as farmers would feel more secure and willing to cultivate for the longer term.
Traders saw December support at 975 pounds, the day's low, and then 947 pounds. Resistance was at 1,011 pounds. Dealers said white sugar futures appeared to be headed lower in the short term, and saw immediate support in October at $278.00, just above Friday's 21-month low of $277.40.
October ended down $0.60 at $280.90 a tonne. "The funds are net short in whites," one dealer said. "With this overlay (supply glut), it is hardly surprising people expect the market to go lower."
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