SOFTS-Arabica coffee falls as record coffee crop looms

Sat Mar 10, 2012 12:27am IST

Stocks

   

* Record global coffee crop seen in 2012/13

* May robusta coffee premium widens

* Talk of Ivorian cocoa sales after price surge (Adds closing prices of sugar and coffee.)

By Rene Pastor and Nigel Hunt

NEW YORK/LONDON, March 9 (Reuters) - Arabica coffee futures on ICE Friday retreated toward the 16-month low set earlier this week as prospects of a record global crop in 2012/13 threw the market on the defensive.

ICE cocoa extended the gains from its technically driven surge of Thursday, while sugar drifted lower in dull dealings.

May arabica dropped 3.20 cents or 1.7 percent to close at $1.862 a lb. The session low was at $1.856, just a hair above the $1.851 hit on Thursday, the lowest level for the second month since mid-October 2010.

Prices have fallen nearly 40 percent from peaks hit in May 2011 as the prospect of a much larger global crop in 2012/13 has helped to ease concerns about tight supply and dampen investor appetite for the commodity.

"The market is now well off those (2011) highs and there has been a growing feeling as 2012 progresses that there is currently more downside potential than upside for the market given the prospect of a return to world surplus in 2012/13," said Andrea Thompson, analyst at CoffeeNetwork, a subsidiary of INTL FC Stone.

World coffee production was projected to rise to a record 146 million (60-kg) bags in 2012/13, up 11 million bags from 2011/12, Thompson said in a report.

"Given the outlook of a record crop in Brazil, financial investors are betting on falling prices and are thereby contributing to the price slide," Commerzbank said in a report.

"In view of the continued tight supply, we regard the price slide to below the $2 per lb mark as unsustainable and expect arabica prices to recover in the coming months," it added.

International Coffee Organization head Roberio Oliveira Silva also said on Thursday the he did not see the fall in prices continuing due to growing demand.

Dealers said there may be scope for a short covering rally in the near future.

Country Hedging analyst Sterling Smith said the softs complex will continue to be influenced by developments in global markets.

"Commodities are going to be hostage to macro developments," he said.

The May robusta contract on Liffe fell $38 or 1.8 percent to finish at $2,050 per tonne, with the focus remaining on possible tightness in available deliverable supplies and a widening premium to July LRC-2=R.

Dealers noted talk that one market participant might be building a large long position in the May contract was reinforced by large options trade earlier this week.

May's premium to July widened to around $57, up from around $50 at the close on Thursday.

COCOA FIRMER, SUGAR FALLS

Cocoa extended the technical advance it posted in the previous session while sugar futures drifted lower.

May cocoa on ICE gained $15 to conclude at $2,410 a tonne. May cocoa on Liffe rose 16 pounds, or 1.04 percent, to settle at 1,556 pounds a tonne.

Sugar eased, with the sweetener weighed in part by a global sugar supply surplus in 2012/13.

Raw sugar prices on ICE turned lower with May down 0.30 cent, or 1.25 percent, to end at 23.66 cents a lb and London May white sugar futures slid $8.10, or over 1.2 percent, to close at $625.50 per tonne.

Smith believes raw sugar will probably consolidate around 23 cents.

"The latest crop progress reports indicate only little change in the global sugar market fundamental picture," the International Sugar Organization said in a market update.

"A significant excess of global production over consumption in 2011/12 is still widely expected," the report added. (Additional reporting by Michelle Martin in London; Editing by John Picinich)

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