SOFTS-Robusta hits four month high, narrows discount to arabica

Thu Feb 7, 2013 3:22pm EST

* Robusta/arabica arbitrage narrowest since April 2009

* Vietnam 2012/13 robusta output seen at 25 mln bags

* West African cocoa forward sales lagging (Updates closing coffee/ sugar prices)

By Marcy Nicholson and Sarah McFarlane

NEW YORK/LONDON, Feb 7 (Reuters) - Robusta coffee futures on Liffe jumped to a four-month high on Thursday to post its narrowest discount to arabica beans in nearly four years, while raw sugar on ICE was little changed in choppy dealings.

Cocoa futures were firm on ICE Futures U.S. with most of the session's heavy volume a result of position rolling out of the spot contract ahead of first notice day Feb. 14.

May robusta coffee futures on Liffe rose $7, or 0.3 percent, to settle at $2,079 a tonne. The contract climbed to a peak of $2,092, the highest level for the benchmark second month since October, as origin selling from top producer Vietnam slowed ahead of holidays to mark the Lunar New Year.

Andrea Thompson, an analyst at Coffee Network, part of INTL FCStone, pegged Vietnam's 2012/13 crop at 25 million 60-kg bags, down from 27 million the previous year.

The price surge caused the arbitrage between robusta futures trading on Liffe and arabica coffee futures on ICE Futures U.S. to narrow to about 45 cents per lb, basis the spot contracts KC-LRC1=R, from 48.5 cents on Wednesday, the smallest premium for arabica over robusta since April 2009, preliminary Thomson Reuters data showed.

Arabica futures moved in the opposite direction, with March/May spreading lifting volume ahead of the spot contract's first notice day on Feb. 20. The market felt pressure from the weak commodity complex - the Thomson Reuters-Jefferies CRB index fell 0.6 percent - as well as declines in the major stock markets and sharp gains in the U.S. dollar.

A strong greenback can spark selling by investors holding other currencies.

March arabica coffee futures edged 1.80 cents, or 1.3 percent, lower on ICE to close at $1.4030 per lb, after dipping to $1.3965, the lowest level for the spot contract on a continuation chart since mid-December.

"The outside markets are very weak. You're seeing the stock market selling off quite a bit today; that's putting downward pressure on coffee," said Spencer Patton, founder and chief investment officer of Steel Vine Investment in Chicago.

Dealers said arabica coffee prices were under pressure from a weak technical outlook, falling for the fourth straight day, combined with improving crop prospects in top producer Brazil.

"The market's been under pressure with the good prospects for Brazil's 2013/14 crop and solid export flow out of Central America," Thompson said.

BUMPER SUGAR HARVEST

March raw sugar futures on ICE inched down 0.03 cent to finish at 18.16 cents a lb as expectations for a second bumper crop in top producer Brazil kept the market near last month's 2-1/2 year low of 18.06 cents.

"We expect a test of key support in coming sessions around 18 cents and expect stops just underneath," said Thomas Kujawa of brokerage Sucden Financial.

Open interest in sugar and arabica continued to rise steadily to their highest levels since 2010, exchange data showed.

Rainfall in Brazil's main sugar cane belt is keeping the new crop on course for a record harvest of nearly 600 million tonnes which is due to start in early March, weather forecaster Somar said on Wednesday.

March white sugar on Liffe rose a modest $2.30, or 0.5 percent, to end at $490.40 a tonne.

Cocoa futures bucked the day's weak trend in a move described as consolidative, as the firm sterling against the U.S. dollar supported contracts on ICE, but traders said the market remained in its five-month-long downtrend.

"This appears to be more of a sideways consolidation, more base building (type) price action for cocoa," Patton said.

Expectations that West Africa's forward sales are lagging, with limited volumes being sold in the Ivory Coast auction system, capped gains, dealers said.

"There're bids going in but no one's actually getting anything, the bids that are going in are unsuccessful," said a London-based broker.

May cocoa on Liffe rose 3 pounds, or 0.2 percent, to close at 1,461 pounds a tonne.

The industry was expected to hold sufficient cover and was in no hurry to buy, said the broker.

March cocoa futures on ICE settled up $15, or 0.7 percent, at $2,238 a tonne, a $2 premium to the second position , causing the chart to invert for the first time since Dec. 13. (Editing by William Hardy, Marguerita Choy and Jim Marshall)