Arabica coffee futures on ICE fell 5 percent in heavy volume o n Wednesday and sugar also tumbled, with both markets hitting 21-month lows as investors sold riskier assets on renewed worries the euro zone's debt crisis will hurt the global economy. US cocoa futures closed at a six-week low, and robusta coffee and white sugar also weakened as the Thomson Reuters-Jefferies CRB index, a benchmark for commodities, dropped 1.7 percent to a 20-month low.
"The debt crisis is weighing on all the markets: financial, equities, commodities. To me it just looks like a flight to cash right now," said Nick Gentile, chief trader for commodity fund Atlantic Capital Advisors in New Jersey. The euro tumbled against the US dollar to its lowest since August 2010, making dollar-denominated commodities more expensive for investors holding other currencies and possibly spurring selling interest in key agricultural producing countries with softer currencies such as Brazil and India.
Next to frozen concentrated orange juice futures, arabica coffee futures on ICE were the second-weakest performer on the CRB. The benchmark July arabica contract slumped 7.60 cents, or 4.4 percent, to close at $1.6690 per lb, the weakest since August 25, 2010.
Volume was heavy at more than 48,000 lots, the highest since April 16, preliminary Thomson Reuters data showed. Dealers said the liquidation triggered several waves of automatic sell orders to boost volume. The market is technically bearish, having dropped below a death cross - when a long-term moving average crosses above a shorter-term one - in September 2011 and subsequently dropping well below the 61.8 percent Fibonacci retracement level. Funds continue to hold a significant net short position on arabica coffee.
"You will see some short-covering from the funds eventually but they are not going to cover down here. They have no reason to panic. They are making a fortune," one dealer said. Robusta coffee futures on Liffe also fell although the market remained underpinned by strong demand and a large open interest in call options. July robusta coffee futures on Liffe fell $21, or 1 percent, to settle at $2,182 a tonne.
Raw sugar futures sagged to a fresh 21-month low in line with the CRB, but steady cash interest at the lows provided a measure of support for the sweetener, analysts said. July raw sugar eased 0.29 cent, or 1.5 percent, to finish at 19.51 cents per lb, the lowest settlement for the spot position since late August 2010. August white sugar futures on Liffe slipped $4.50, or 0.8 percent, to end at $550.70 per tonne. Cocoa futures joined the retreat with ICE July closing down $55, or 2.5 percent, at $2,124 a tonne, the lowest finish since April 11. September cocoa on Liffe eased 24 pounds, or 1.6 percent, ending at 1,471 pounds a tonne.