Arabica coffee premium over robusta soars, blends questioned

NEW YORK, April 10 Thu Apr 10, 2014 7:38pm EDT

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NEW YORK, April 10 (Reuters) - The premium of arabica coffee over the more bitter robusta bean soared to the highest level in more than two years on Thursday, raising the likelihood that some roasters will need to alter their highly secretive blends to maintain profit margins.

"They may be forced to because of the looming tightness plus quality issues," said Judith Ganes-Chase, president of J. Ganes Consulting based in New York, referring to arabica coffee.

A January-February drought in the coffee belt in Brazil hurt some of the arabica crop as it developed on the trees, though the extent of the damage to both yield and quality is yet to be seen.

Brazil grows roughly 40 percent of the world's arabica, which forms the backbone of most major commercial blends used in household names including U.S. Folgers maker J.M. Smucker Co and Maxwell House maker Kraft Foods Group.

Concerns about reduced output from the drought, which was followed by below-average rainfall, caused a jaw-dropping 85 percent spike in futures prices so far this year.

The benchmark arabica futures contract trading on ICE Futures U.S. soared 4 percent to $2.0780 per lb at one point on Thursday, the highest for the spot contract since February 2012. Though robusta futures on Liffe were also firm, their run-up this year has been a more modest 31 percent.

On Thursday, the premium of arabica over robusta KC-LRC1=R soared nearly 8 percent to $1.09 per lb, the highest since March 2012.

Arabica coffee is typically roasted and ground for brewing and can range widely in quality, with some reaching the highest levels. Robusta, on the other hand, is typically less expensive and more bitter and either processed into instant coffee or added to a roasted blend to reduce the cost.

When arabica's premium vaulted near $1.90 per lb in May 2011, following an 11-month rally in arabica futures that caused the market to double in price on supply concerns and speculative buying, several roasters either increased their robusta usage in existing blends or created new products using robusta. (Reporting by Marcy Nicholson; Editing by Lisa Shumaker)

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