Robusta rises to highest since Aug, converges on arabica
* Vietnamese robusta farmers reportedly holding back stocks
* Some U.S. roasters increase low-grade arabica purchases -importer
* Low robusta warehouse stocks seen lifting prices
By Marcy Nicholson
NEW YORK, Dec 9 (Reuters) - Tighter supplies from Vietnam, the world's top robusta grower, boosted London futures on Monday to their highest since August, squeezing the price gap with milder, more expensive arabica beans to its narrowest in at least five years.
The price move made low-grade arabica beans even more attractive to some U.S. roasters, who scooped up beans to replace their robusta needs, U.S. importers said.
The steep erosion of arabica's premium over robusta should spur more roasters to switch to using more of the better-tasting beans at bargain prices.
The caffeine-rich robusta bean is used widely in instant coffee and as a cheaper blending option in brewed coffee, while arabica dominates the gourmet roast-coffee market.
The global market has been bracing for bumper crops of both types of beans.
The Liffe January robusta futures contract rose to a $46-per-tonne premium over March robusta on Monday. That is the highest premium for the January contract, which is typically at a discount to March.
Short-term availability has fallen as farmers in Vietnam, who are almost finished with their harvest, have reportedly held back stocks in an effort to raise prices.
"You have a short-term, near-term shortness in the market that is, as we all know, full of supplies and that is what is causing an increase in the nearby premium as well as the rather short warehouse stocks," said Sterling Smith, futures specialist with Citigroup in Chicago.
On a continuous chart LRC-1=R, which looks at the rolling spot and second-month positions, the premium rose to the highest since January.
The inversion, known as backwardation when the nearby contracts fetch a premium to deferreds, appeared on Dec. 2.
BACKWARDATION, NARROWING GAP
Such a wide backwardation and the narrowing of the gap between the two grades of beans are likely to roil arabica market too.
As the two markets started to converge earlier this year, some instant coffee makers took the rare step of adding arabica beans to their blends, coffee buyers said. Back then, the permium was 30 cents per lb.
"We had some interest in robustas, but there aren't many around so the interest turned to under-grade arabicas," said one U.S. importer, adding some roasters with blending flexibility have been looking for delivery as far out as February.
On Monday, the premium of arabica futures on ICE Futures U.S. shrank to nearly 25 cents a lb, its lowest since the current robusta futures contract was created in 2008. It has tumbled more than 30 percent in just six trading sessions.
"With arabica not having any shipping problems or availability issues, that's allowing the robusta premium to climb," Smith said.
Arabica prices are hovering just above a five-year low and are widely expected to retest the low as abundant global supplies have weighed on prices for the past year.
The current premium is down sharply from the steep premium arabica held over robusta in May 2011 at nearly $1.90 per lb, when arabica futures rallied on the expectations of a shortage.
This spurred many roasters to reduce the amount of arabica coffee they put in their highly secretive blends and increase that of robusta.
Prior to the 11-month rally that catapulted arabica futures above $3 per lb in 2011, which in turn drastically widened their premium to robustas, the bean fetched a range from 26 cents to 86 cents per lb. (Reporting by Marcy Nicholson; Editing by David Gregorio)
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