ICE arabica coffee futures fell sharply after earlier rising to the highest level in almost two years on Tuesday as investment funds scaled back long positions. Dealers said, however, the market remained underpinned by low stocks in Brazil and quality concerns. "It has gone up a great deal over the last week or so. It has got overheated and is just cooling down a bit," one London dealer said, adding investment funds appeared to be taking profits on long positions.
December arabica coffee was off 4.45 cents or 2.6 percent at $1.6990 per lb at 1520 GMT after peaking at $1.76, the highest for the front month since January 2015. Dealers said the availability of high quality arabica coffee had been curbed by low inventories in Brazil and problems with this year's harvest in the world's top producer. "Quality is a huge concern at the moment and as the season progresses this is becoming clearer," said Abah Ofon, analyst for Agrimoney's Global Coffee Monitor.
He noted Brazil's arabica harvest this year included a significant proportion of low quality coffee. "There are a whole host of supportive factors, quality being one, low inventories being another," he said, also listing hedge fund buying and currency strength. Funds had been building long positions against the backdrop of supportive fundamentals.
January robusta coffee fell $70 or 3.2 percent to $2,124 a tonne, retreating from the prior session's two-year high of $2,199. New York cocoa futures edged up as the market clawed back some of its recent steep losses but remained in striking distance of the prior session's three-year low. March New York cocoa rose $26 or 1.1 percent to $2,471 a tonne. The second position slumped to a low of $2,437 on Monday, the weakest since September 2013.
Dealers said recent weakness had been driven partly by an improving outlook for crops in West Africa. Plentiful sun and rain last week in Ivory Coast's main cocoa growing regions will improve the quality and size of the main crop, farmers said on Monday. "Numerous observers now expect the global cocoa market to show a surplus in the 2016/17 season after having posted a deficit in 2015/16. Most estimate figures of around 100,000 tons," Commerzbank said in a market update. March London cocoa futures rose 9 pounds or 0.4 percent to 2,038 pounds a tonne. Sugar futures were lower with March raws off 0.22 cents or 1.0 percent at 22.05 cents a lb and December whites down $3.50 or 0.6 percent at $577.10 per tonne.
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