World arabica prices headed sharply lower on Tuesday, following a stellar rally that saw them clock their fourth-largest daily gain on record in the prior session. Cocoa prices fell meanwhile, having earlier extended their Monday rally to hit fresh six-month highs.

Soft commodities such as cocoa, coffee and sugar are being driven by fears the current El Nino weather pattern is set to morph into a strong or potentially very strong occurrence, causing climate havoc in key growing regions.

Dealers, however, said Monday's 16% gain in New York arabica futures was exaggerated by speculators playing catch up as U.S. markets were closed Friday on account of the Independence Day holiday.

The buying by speculators, they said, spurred technical signals that in turn prompted even more buying.

"It was speculator driven. Everyone has known about El Nino for months now," said an analyst at a global commodities trade house.

By 1308 GMT on Tuesday, ICE exchange traded New York arabica ICEUS:KC1! was down 6% at $3.2895 per lb, some way off Monday's six-month peak of $3.57. London robusta coffee ICEEUR:RC2! was down 2% at $3,959 a metric ton, having gained 8.8% on Monday.

The United Nations weather agency raised its El Nino forecast to "strong" on Friday and warned it could further revise it to "very strong".

El Nino is especially problematic for robusta coffee as it typically brings higher temperatures and reduced rainfall to top grower Vietnam and No. 3 grower Indonesia. In top arabica grower Brazil, it tends to cause excess rains that disrupt the harvest.

The weather pattern is generally more serious for cocoa as it tends to bring excess rains to top grower West Africa, as well as to Ecuador. The West Africa rains are then typically followed by dry, hot Harmattan winds that harm the already weakened crop.

Cocoa prices nearly tripled in 2024 as the West African harvest failed amid a moderate-to-strong El Nino that ran from mid-2023 to mid-2024.

ICE traded New York cocoa hit a fresh six-month high of $5,900 earlier and later traded down 2.4% to $5,560 a ton. London cocoa ICEEUR:C2! hit a fresh six-month high of £4,371 and was later down 2.1% at £4,131 a ton.

Sugar also gave back some of its Monday gains. Raw sugar ICEUS:SB1! fell 0.7% to 15.11 cents per lb, having gained 2.5% on Monday. White sugar ICEUS:SF1! fell 2.9% to $474.50, having gained 0.6% on Monday.