Coffee hits 3-1/2-week low, rains spark liquidation

ICE arabica coffee dropped over 6 percent on Monday to a 3-1/2-week low on Monday as showers in top grower Brazil sparked liquidation and eased worries over a potentially damaging dry spell. Raw sugar on ICE Futures US rose on news of a warehouse fire in Santos, Brazil's leading sugar port, and cocoa edged higher. The front-month ICE December arabica coffee contract closed down 11.25 cents, or 5.3 percent, to $1.9940 per lb after tumbling to $1.9720 per lb.
Scattered showers began to break the hot, dry trend over Brazil's coffee and sugar regions. The showers and forecasts of more rain to come prompted speculator liquidation, with sell-stops exaggerating losses, traders said. "The drop is a knee-jerk reaction to Brazil weather reports," said Andrea Thompson, an analyst with CoffeeNetwork, part of INTL FCStone.
Speculators have boosted their bullish position in arabica coffee contracts to 2008 highs amid worries that protracted dry weather could slash Brazil's 2015/16 output. Prices hit a 2-1/2 year high of $2.2550 a lb on October 6. November robusta coffee on Liffe finished down $68, or 3.2 percent, at $2,049 a tonne. Raw sugar futures gained on news that a blaze destroyed a sugar warehouse operated by Cargill and Biosev at Brazil's Santos port early on Monday, the third major fire at a sugar export terminal there over the last year.
March raw sugar on ICE settled up 0.06 cent, or 0.4 percent, at 16.68 cents a lb, and December white sugar on Liffe ended up $1.70, or 0.4 percent, at $427.70 per tonne. Traders said that while the fire could cause a potential supply disruption in the world's top producer, market reaction was relatively muted because short-covering rallies after previous fires were deemed overdone and global inventories are plentiful. Datagro analysts said after the close that this year's output in Brazil's key sugar region would be 31.6 million tonnes, down 8 percent year-over-year.
ICE December cocoa closed up $2, or 0.6 percent, at $3,120 a tonne. Liffe December cocoa ended up 6 pounds, or 0.3 percent, at 2,028 pounds per tonne. Concerns that Ebola could extend into the Ivory Coast, potentially disrupting supplies in the world's top grower, and Thursday's strong U.S. demand data supported prices last week. Asia's third-quarter grind data was due later this week. Exporters in Ivory Coast are making "all efforts" to ship cocoa as soon as it is available, the International Cocoa Organisation (ICCO) said in a statement on the impact of the Ebola outbreak on the West Africa cocoa sector.