US front-month arabica coffee futures slumped more than 3 percent to a two-week low on Monday, with fund selling knocking the market down for the third consecutive session, market sources said.
The New York Board of Trade's arabica coffee contract for September delivery fell 3.55 cents or 3.4 percent to settle at $1.0075 a lb, near the bottom of a trading range from $1.0050 to $1.03.
It was the contract's weakest finish since August 1. Among other arabicas, December lost 3.50 cents to end at $1.0484 a lb and back months shed 3 to 3.40 cents. "It was some index-fund selling which triggered some system sell stops," said a coffee trader at a US investment bank in New York.
"The roasters really backed off and they weren't aggressive in extending cover," he said. Arabica futures trading volume reached an estimated 24,299 lots, fuelled in part by traders rolling out of the September position before its August 23 first notice for delivery.
The front end of the market has fallen nearly 8 percent since scaling a three-month peak of $1.0920 on August 9. "You really didn't have the fundamentals to sustain the (recent) rally and the market got a little overbought," said a coffee trader at a brokerage house in New York.
"The funds went from short to long and the market ran out of fund buying," he said.
By August 8, non-commercial players were holding a net long position of 3,760 contracts of New York Board of Trade (NYBOT) coffee futures, according to Commitments of Traders data issued on Friday by the Commodity Futures Trading Commission.
That compared with a net short position of 6,813 lots a week ago. On the weather front, US forecaster Meteorlogix on Monday predicted it will be dry with a chance of a few light showers in top coffee producer Brazil during the next seven days.
After August 20 a new cold front will arrive with a polar air mass and limited moisture, according to private Brazilian forecaster Somar.
Meanwhile, coffee consumption in Brazil, the No 2 consumer after the United States, rose 2.9 percent to 15.95 million 60-kg bags in 2005/06 (May-April) from the previous season, the Brazilian Coffee Industry Association said on Monday.
Elsewhere, torrential rains late last week have triggered flooding in a district in No 2 coffee producer Vietnam's Central Highlands, but officials said on Monday that coffee trees were safe. In robusta trading, Life's benchmark November contract settled down $44 or 3.2 percent at $1,348 a tonne, having dealt from $1,343 to $1,397.
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