Coffee prices slumped to their lowest in more than two years, surprising many investors, amid growing expectations for Brazil's 2013 harvest, and heightened by a Macquarie forecast of a return to a "structural surplus".
New York arabica coffee for December delivery tumbled 5.1% to 143.75 cents a pound, the weakest close for a spot contract since June 2010.
The better-traded March lost shed 3.1% to 152.45 cents a pound, within 2 cents of recording the same feat for the nearest-but-one contract too.
The declines defied expectations that data showing a record net short position among speculators might support futures, in creating concerns over the level of unspent selling pressure, and some potential cause for an upward correction in values.
Marex Spectron raised the potential for the index fund reweighting in January as a cause for a, temporary, rebound in values, forecasting that arabica futures may find a bottom in the next week or two.
However, prices are being undermined by rains which have set up the prospect for a strong harvest by Brazil, the top arabica producer, in 2013 by encouraging flowering and early bean development, and by a dearth of selling of the 2012 crop so far – implying selling pressure to come.
"Hands up all those who aren't too surprised with today's action in New York coffee?" Sucden Financial asked.
"But in the cold light of day, we have to ask ourselves who, if not the funds, will step in to buy when we still expect origin to pressure."
Brazilian producers have some 50-60% of their newly-completed harvest yet to sell, according to Macquarie contacts.
Macquarie's estimate came as the bank, which were relatively upbeat over coffee futures earlier in the year, formally ditched expectations of a late-2012 uptick in prices, flagging the potential for the strong Brazilian harvest to bring the world a second successive production surplus in 2012-1.3
"The recent rains in Brazil have been providing a good environment for flowering," Macquarie analyst Kona Haque said.
"This - coupled with greater investment in new seedlings, area expansion, pruning, husbandry and fertiliser applications over the past three years - is leading to the anticipation of a very large Brazilian crop in 2013."
While declining to forecast the 2013 harvest so early in the season, "we could be entering a period of sustained structural oversupply similar to the period prior to 2010 when prices trended at the old international coffee agreement price of 150 cents a pound".
"Assuming normal weather scenarios, there is a risk that prices return back to the historical trading range of 130-150 cents a pound, as the market enters a structural surplus."