Arabica coffee and raw sugar futures on ICE extended losses from multi-month highs on Wednesday, on forecasts for rain in top grower Brazil, where a drought has caused concern about significantly reduced yields. Cocoa on ICE Futures US and Liffe inched higher in choppy dealings.
May arabica coffee futures on ICE dropped 1.0 cent, or 0.6 percent, to $1.7525 per lb by 12:38 pm EST (1738 GMT), after falling to a session low at $1.7105, more than 10 cents below the previous session's 16-month high of $1.8125. "The forecasts for rains later in the week has jolted this market," said Robbert van Batenburg, director of market strategy at Newedge USA, referring to arabica futures. Brazilian weather forecasters Somar said that widespread rainfall is expected to blanket much of the key coffee and cane regions starting on Friday through March 7.
Still, a study by the local government showed that the hot and dry weather has already damaged as much as 45 percent of the coffee beans in the worst-hit area of the nation's main growing state. Arabica futures are on track for their biggest monthly surge in nearly 20 years, with February's rise so far around 36 percent. In 2014, coffee has surged more than 53 percent as speculators shifted to a net long position on production concerns due to the Brazilian drought. This has made it the strongest performer on the Thomson Reuters/CoreCommodity CRB Index by far, followed only by lean hogs futures, which are up around 18 percent.
The surge in volatility caused the exchange to raise its initial margin requirements in coffee by 7.5 percent to $7,200 per contract, its sixth straight hike since mid-November. Liffe May robusta coffee futures were down $18, or 0.9 percent, at $1,999 a tonne. ICE raw sugar futures also fell, on forecasts for much-needed rain in Brazil, dealers said.
Following volatility spurred by crop weather concerns, the exchange hiked its margins to the highest since October 2012. March was down 0.15 cent, or 0.9 percent, at 17.19 cents a lb, well above the session low at 16.61 cents. This follows Tuesday's peak at 17.77 cents, the highest price for the front month since November 2013. Total open interest tumbled by nearly 19,000 lots on February 25, to 813,934 lots, the lowest since December 16, exchange data showed. May white sugar futures on Liffe were down $1.10, or 0.2 percent, at $475.50 per tonne.
Cocoa futures on ICE turned higher, consolidating after falling from last week's 2-1/2 year high, supported by expectations for global deficits in 2013/14 and 2014/15. May cocoa futures on ICE closed up $11, or 0.4 percent, at $2,932 a tonne. May cocoa on Liffe rose 6 pounds, or 0.3 percent, to settle at 1,827 pounds a tonne.
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