Coffee Falls Most in Two Years on Concern Recovery Is Faltering

Bloomberg via San Francisco Chronicle
August 23, 2010

Coffee declined the most in more than two years as a bigger-than-expected plunge in U.S. home sales stoked concern the economy may relapse into a recession, eroding demand for commodities.

The Standard & Poor's 500 Index fell for a fourth day as global equity markets sank. The Reuters/Jefferies CRB Index of 19 raw materials plunged the most since June 29, led by the drop in coffee. Before today, the commodity surged 50 percent in New York during the past year and yesterday touched the highest price in almost 13 years.

"There is long liquidation after the market rose to a new high," said Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago. "The weakness in the equity markets is also adding selling pressure."

Arabica coffee for December delivery slumped 14.8 cents, or 8.1 percent, to settle at $1.6845 a pound on ICE Futures U.S. in New York, the biggest decline for a most-active contract since March 17, 2008. Yesterday, the commodity reached $1.8865, the highest level since Sept. 11, 1997, on concern that demand will outpace production.

On London's Liffe exchange, robusta-coffee futures for November delivery retreated $137, or 7.7 percent, to settle at $1,640 a metric ton, the biggest drop since at least January 2008.

Today's settlement at a lower price one day after reaching a high is a "very negative signal," according to Doug Whitehead, an analyst at Rabobank International in London.

"With such a weak technical signal, you would think that would prompt additional selling, as producers and traders might find prices could head lower for the next few days," Whitehead said.

Sales of existing houses plunged by a record 27 percent in July to a 3.83 million annual pace, the lowest in a decade of record keeping, the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15-year low and the number of homes on the market swelled.

The decline was worse than the most pessimistic forecast of economists surveyed by Bloomberg News as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

The Dow Jones Industrial Average dropped as much as 1.8 percent and the S&P 500 Index fell as much as 1.9 percent.

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Editors: Steve Stroth, Millie Munshi.