Arabica coffee futures pulled back on Thursday, as profits were taken in thin markets on the last trading day of the year, dealers said. But speculation persists that beans will be in short supply next year, which should continue to be supportive in the short term for coffee prices, sources said.

The bellwether March contract slid 4.20 cents to finish at 103.75 cents a lb, trading from 103 to 108.10 cents.

The contract reached 108.70 cents last on Tuesday as funds bought on prospects that the coffee harvest from Brazil, the largest grower overall, and Vietnam, the No 1 producer of lower grade robusta coffee, will be on the small side.

The May contract tumbled 4.15 cents to 106 cents. The rest retreated 4.20 to 4.35 cents.

Futures at the New York Board of Trade unwound most of Wednesday's 3 percent gain, failing to break above last week's 4-1/2 year high.

The exchange will be closed on Friday for New Year's. "It looks constructive, but certainly we could see some setbacks given that the funds have an excessively long position," said Mike McDougall, senior vice-president of FIMAT USA Inc.

He added that a combination of speculative profit-taking and long liquidation deflated values for the session.

Still, drier weather in Brazil's coffee growing states Sao Paolo and Minas Grease favour the crop, weather forecasting service Meteorlogix said on Thursday. Conditions are also favourable in Colombia, where the main crop is in harvest and Vietnam, which is the middle of its own harvest.

The upside target for March coffee is between 108.70 and 109 cents, where it would fill a gap on the charts dating back to 2000, a trader said. Final estimated volume reached 11,701 lots, from the prior tally of 11,226 lots.

Open interest in the arabica market climbed 853 lots to 111,490 lots as of December 29.

Copyright Reuters, 2005