Arabica coffee futures bolted to six-week highs on Tuesday, rising for a third straight session and staging their most dramatic rally in over two years, as speculative investors continued to cover their largest short position on record. Raw sugar rose as the market digested Brazilian harvest data and cocoa futures remained under pressure on profit taking.
ICE December arabica coffee futures rallied over 3.5 percent to $1.8 per lb, its highest level since July 31, as speculative shorts raced to cover a record position built up since the start of August. That took coffee up 15 percent since hitting multi-month lows of $1.56 last Thursday and put price on track for their biggest three-day rally since June 2010 when the market was starting its long climb to record highs above $3 per lb.
By 1:22 p.m. EDT (1722 GMT), prices had eased off the highs due to technical resistance and were up 2.36 percent at $1.7775 per lb. Traders said the speculative short, representing some 9 million bags of beans, which was revealed in Friday's CFTC data was not sustainable. "It was poised for a correction," said Keith Flury, senior commodity analyst at Rabobank.
The gross short would be equivalent to 14.6 million bags, according to James Hearn, joint head of agriculture at Marex Spectron. That gross position would be more than 10 percent of 2011/12 global coffee production, which the International Coffee Organisation (ICO) pegged at 132.7 million 60-kg bags. A drop in open interest of 345 lots to 144,592 on Monday as prices surged almost 7 percent illustrated the extent of the covering.
Reflecting coffee's dramatic reversal, prices were close to overbought territory with a relative strength index (RSI) reading of 62 on Tuesday. That compares with 34 last Thursday, just before the market started its comeback. November robusta coffee futures settled up $7 or 0.33 percent at $2,066 a tonne. New York coffee outperformed the broader commodity market and euro, which hit four-month highs against the dollar on hopes of a bailout for debt-laden euro-zone countries and further monetary easing by the US Federal Reserve later this week.
Prices were up 0.07 cent or 0.36 percent at 19.50 cents per lb, moving off an intraday low of 19.30 and still recovering from two-year lows of 18.81 cents hit last Thursday. October white sugar on Liffe rose 50 cents or 0.09 percent to $558.9 per tonne. ICE December cocoa settled down $21 or 0.8 percent at $2,632 per tonne, as investors continued to lock in profits after prices hit 10-month highs last week. Benchmark London December cocoa settled down 20 pounds or 1.2 percent at 1,687 pounds per tonne.
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