SOFTS-Cocoa slips, dealers note origin hedging

Fri Feb 17, 2012 4:44pm EST

* Robusta premium narrows

* Cocoa hedging from Ghana noted

* Sugar trade focused on Brazil crop development (Adds CFTC data in paragraphs 21, 22)

By Marcy Nicholson and Sarah McFarlane

NEW YORK/LONDON, Feb 17 (Reuters) - Cocoa futures slid on Friday, trimming gains following the short-covering rally earlier in the week, under pressure from origin hedging with both Ivory Coast and Ghana selling forward, said dealers.

Coffee inched higher in choppy trade, as dealers eyed the narrowing premium on front-month robustas, while sugar also turned up.

Liffe cocoa futures traded over 2 percent lower, with dealers noting hedging pressure.

The softs markets trading on ICE Futures U.S. will be shut for the Presidents Day holiday on Monday and will reopen for regular trade Tuesday, Feb. 21.

London May cocoa futures fell 41 pounds, or 2.7 percent, to settle at 1,502 pounds a tonne, while benchmark ICE May futures dropped $60 or 2.5 percent, to end at $2,345 a tonne.

"Ghana are big sellers, they have been for the past three or four days," said a London-based broker.

One veteran cocoa dealer in New York noted that Ghana, the world's second-biggest producer, sold at a significant discount to last year's average price.

"This rally has been defined by spec short-covering and I think that's over," the dealer said, noting another reason for the day's weakness.

A group of Ivorian cocoa exporters including majors such as Armajaro and Noble said on Thursday they would begin participating in Ivorian cocoa auctions on Feb. 17 after reaching a compromise with the government.

"It's looking like things are progressing. More people are using it. We had started out with small local based purchases testing the water," said a second London-based broker.

"We're seeing an increase in (hedging) flow into the forward months, what was small clips of 10-20 lots have grown on a daily basis ever since the opening day."

ROBUSTA PREMIUM

Robusta coffee futures eased as dealers eyed the narrowing premium on the front-month contract, which fell to close at a $100 per tonne premium over May LRC-1=R, compared with a premium of $129 per tonne at the close on Thursday.

One market participant has built up a long position in NYSE Liffe's March robusta coffee futures contract, which could equate to a delivery of a large chunk of the certified coffee available, and exceed proposed delivery limits due to be enforced by the exchange later in the year, traders said.

Dealers said that the high open interest on the March contract could represent some duplication.

"Open interest suggests a lot of shorts but I think there's some duplication. That would be the most rational explanation. Someone is long in one account and short in another and it appears like there's big open interest," said a dealer.

"How much duplication is the question."

Benchmark May robusta coffee on Liffe dropped $45, or 2.2 percent, to close at $1,994 a tonne.

Volume was light in arabica coffee futures on ICE, with dealers wary to take on risk ahead of the long weekend, especially as economic uncertainty remains in Greece, dealers said.

May arabica was choppy, and finished up 1.15 cents, or 0.6 percent, at $2.0235 per lb.

The market took a breather after dropping for seven days straight and closing at a 15-month low on Thursday.

Speculators increased their net short position in arabica futures and options to the biggest level since August 2011, in the week ended Feb. 14, U.S. Commodity Futures Trading Commission data showed post-market.

They also increased their net short position in cocoa and raised their net long position in raw sugar.

March raw sugar futures on ICE dealt in a narrow range that lacked direction. The contract crept up 0.03 cent to settle at 24.62 cents per lb.

"For now, I would still expect some further consolidation within the current 23.00/24.00 cents a lb range, with the dollar exchange rate still determining the market's direction," a senior sugar futures broker said.

Dealers eyed the premium on the front month over May, which was expected to attract sugar for delivery.

The white's premiums continued to narrow, with the May/May and the July/Aug whites-over-raws premiums trading into $101 and around $98 respectively.

Sugar dealers focused on development of Brazil's crop, with the next harvest in the main centre-south growing region due to start around April, and said they anticipated that a global surplus of the sweetener would stretch into next season.

"We await fresh fundamental news, particularly on Brazil, and in the meantime keep a wary eye on the relatively strong oil market," said Thomas Kujawa of brokerage Sucden Financial.

London May white sugar futures fell 50 cents to close at $626.50 per tonne. (Additional reporting by David Brough; Editing by William Hardy, Marguerita Choy and Lisa Shumaker)

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