Arabica-coffee futures plunged the most in almost nine years in New York as a rally in the past two weeks triggered sell signals for chart-watching traders and producers alike.
While the “market had gathered steam” on the seasonal potential for frost, the chance remains slim and “fundamentals are still negative,” according to Judy Ganes, president of J. Ganes Consulting. Speculators appear to be selling amid a lack of threatening weather in Brazil, a relatively stable real and a lot of call option buying, said Jack Scoville, vice president of Price Futures Group.
July futures fell as much as 7.3% to 97.90 cents a pound on ICE Futures U.S., the biggest drop for a most-active contract since August 2010. A 6.2% decline at the close was the steepest since March 2015. The price had gained about 19% since May 17 to $1.0615 on Tuesday, the highest level since early February, partly on concern that rain may hurt bean quality in top producer Brazil.
Wednesday’s pullback was “an ugly mess that caught some people off guard,” Scoville said in an email.
Brazil coffee sales are more active amid the recent price rally, according to Rio de Janeiro-based brokerage Coffee New Selection. Frost risk is fading for some Brazilian coffee regions, according to Somar Meteorologia.
The short-lived rally was a welcome relief in a market that has been depressed for much of this year. Last month, prices reached the lowest since September 2005, amid record supplies and exports coming out of top producer Brazil.
The coffee market was probably overbought after the recent rally, Alexandre Udiloff, broker at Sao Paulo-based H. Commcor, said in a telephone interview. “Futures are also being pressured by the higher volume of coffee being sold by farmers.”
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