Arabica coffee futures fell sharply Monday on speculative fund selling linked to losses in the soft commodity complex, general weakness in the commodity indexes and a bearish chart-based environment.
Nearby March coffee lost 4.90 cents, or 3.6%, to end at $1.2985. May coffee fell 5.15 cents, or 3.8%, to settle at $1.3190 a pound, near the session low of $1.3130.
A quiet fundamental news front and a slightly weak Brazilian real against the dollar inspired bears to sell. Additional selling entered the market as prices fell through technical support on their way to session lows, said Rodrigo Costa, vice president of institutional sales at Newedge in New York.
Sell stops, or pre-programmed, computer-guided chart points, were tripped at $1.3500 on May coffee and also at $1.3430, he said.
Money managers boosted net longs ICE coffee futures and options to 7,326 lots in the week to Feb. 16, from 6,859 net long the prior week, data from the Commodity Futures Trading Commission showed.
The modest increase in longs was enough to cause traders who held long bets to liquidate some of those positions.
Sterling Smith, analyst at Country Hedging in St. Paul, attributed the losses to a combination of technical selling and profit-taking.
The failure to scale last week's peak of $1.3735 in May coffee encouraged bears to sell, and prices fell through technical support zones, he said.
Additionally, the dollar was mostly steady to up slightly versus the euro, and traders were concerned that the greenback may strengthen further, sparking selling interest in commodities.
"With coffee being sensitive to the dollar, I think you had some guys liquidating" based on concern over a rising greenback, said Smith.
Continued worries over debt problems in Europe have nervous traders buying the dollar because it is perceived as a safer investment than the euro.
If the market is to attract new technical buying, May coffee will need to close above $1.3785 a pound, a broker said.
With Monday's selloff, however, bears could extend losses all the way to the Feb. 8 session low of $1.3035 a pound before finding adequate support. This level represents a five-month low for May coffee.
ICE warehouse stocks fell 4,985 bags to total 2.818 million bags.
Open interest fell 821 to total 122,510 contracts. Traders liquidated 1,550 March contracts, leaving 989 positions open.
Futures volume is pegged at 20,721 lots traded, with 2,732 calls and 1,705 put options traded.
ICE Change Range
Mar $1.2985 dn 490 $1.2940-$1.3510
May $1.3190 dn 515 $1.3130-$1.3700
-By Tom Sellen, Dow Jones Newswires; 913-322-5177; firstname.lastname@example.org