Arabica coffee treks closer to recent peak

By Marcy Nicholson and Sarah McFarlane
Reuters via FOREXYARD

August 19, 2010

NEW YORK/LONDON, Aug 19 (Reuters) - Arabica coffee futures finished firm on Thursday on position rolling and roaster nibbling ahead of September's first notice day next week, but shied away from the recent 12-2/3-year top.

Sugar and cocoa futures finished mixed in quiet dealings.

Arabica coffee dealings were choppy as market players rolled positions out of the September contract, ahead of its first notice day Monday, into December, while roasters and investors bought the dips, dealers said.

The move lifted the arbitrage of arabica beans over robusta to $1 for the second time this week. Arabica futures have soared more than 30 percent since mid-June to a 12-2/3-year high at $1.8290 per lb on Aug. 16, in a fund-led rally. Prior to the rally, the arbitrage ranged from about 71 cents to 78 cents.

"The market is a bit tired up here. The market's signaling that it may not be able to sustain current price levels too long without new investment coming in," said Luis Rangel, a vice president of brokerage ICAP Futures LLC in Jersey City, New Jersey. "You're seeing a real tailing off of volume and open interest."

Some fund buying was also seen helping lift prices Thursday as the market absorbed producer selling from top grower Brazil as the harvest was in full swing.

"Everybody is expecting a major correction on the terminal markets and it doesn't eventuate. On the contrary, funds keep buying," a European trader said.

ICE December arabicas rose 2.05 cents to close at $1.7985 a lb. Liffe November robusta coffee traded down $2 to close at $1,751 per tonne.

However, dealers said technical charts pointed to a potential correction lower.

"Technicals have lost some of their fire, and feelings are being mooted that the market is now just too long and at least needs to take a breather," Ralph Hawes at Sucden Financial said.

Raw sugar sifted lower in subdued dealings as the market looked for clarity on Indian output and on light investor sales.

The market again popped higher early, but the move faded and late investor pressure nudged sugar into negative ground.

October has failed to get even near its recent highs at 19.72 and 19.88 cents.

Sugar brokers said consumer activity was quiet as well.

Dealers said they continued to look for more clarity on prospects for Indian output, due to the influence of the world's second-largest producer on world supplies.

"I see little sugar coming out of India over the next couple of months, while we wait for the next crop to come on stream, other than existing commitments to Pakistan," said Peter de Klerk, an analyst at Czarnikow.

"We've seen whites re-invigorated on the fear of not getting any more Indian sugar and strong nearby demand," he added.

London October white sugar traded up 50 cents to close at $558.50 per tonne, while ICE October raw sugar shed 0.12 cent to conclude at 19.48 cents per lb.

Cocoa was quietly mixed, with the U.S. market volume the lightest in two months, with around 6,000 lots trading according to preliminary data, and vulnerable to further losses on the prospects of a large West African main crop.

"We're consolidating, pausing under oversold conditions, maybe looking to correct a little bit higher before we resume the downtrend," Rangel said.

ICE December cocoa rose $1 to close at $2,892 per tonne, while Liffe December cocoa finished the day down 11 pounds at 2,014 pounds a tonne.

"Despite an oversold market, the supply fundamentals are in place to likely push the market lower still," said James Goens, market strategist with LasSalle Futures Group in Chicago.

(Additional reporting by Rene Pastor in New York; Editing by Walter Bagley)