NEW YORK/LONDON, March 25, 2011 - Coffee prices rose on Friday, with the robusta market focused on the widening premium for May over July, reflecting concern about how much coffee will be available for delivery.
Sugar prices also advanced as the market eyed the impact of rains on crop prospects in top producer Brazil while commercial buying helped cocoa futures close strong. Dealings were light across the board.
"(Robusta) certified stocks will go up fairly substantially if the premium stays," one dealer said. NYSE Liffe data issued on Thursday showed a fairly modest rise in certified robusta stocks during the two weeks to March 21.
"We believe that the plentiful supply of robusta beans will lead to a fall in robusta prices in the medium term while in the short-term, the high price level of arabica will prevent this," Commerzbank said in a market note.
May robustas rose $35 to settle at $2,604 a tonne while May arabicas on ICE climbed 2.80 cents to close at $2.6860 per lb.
May robusta's premium to July rose to around $180 a tonne at one stage before closing at $162, still up from around $120-140 on Thursday, although it remained shy of its peak late last week of more than $200.
Dealers said a large trade house or fund is believed to be building up a large long position and already holding a substantial portion of certified exchange stocks.
The large premium has already begun to attract coffee from origin with March exports from top robusta producer Vietnam exceeding expectations.
Arabica coffee prices have been boosted by tight supplies of high quality beans.
"I think we're getting some bargain hunting coming in and I think that bodes well for next week," said Sterling Smith, analyst with Country Hedging in Minnesota.
Arabica futures have fallen from the 34-year high, basis second position, that was hit March 9 at $2.9665 per lb, but the market showed some chart-based strength after the market recovered from its fall on Thursday. Also the put options buying earlier this week appeared to have run its course, Smith said.
On Thursday, total open interest in arabica futures fell to a 15-month low at around 120,000 lots, while options open interest climbed steadily to nearly 182,000 lots, up 15 percent from two weeks ago.
Bright sun in main Colombia coffee areas has boosted flowering -- a key process for predicting the main harvest at the end of 2011 -- and helped stress trees to break the dormancy of flower buds in the world's top producer of high quality Arabica beans.
Sugar prices were higher as the market eyed the crop outlook in top grower Brazil, and were lifted by investor buying.
The sweetener got an added boost from news ethanol mills are starting the crush of Brazil's center-south cane crop a week ahead of the official start, dealers said.
The early start meant supplies of sugar may get even tighter because cane would be going into the production of ethanol instead of sugar at the start of the harvest, they said.
Rains have hampered early harvesting in Brazil and led to some concerns about potential damage to the crop in the centre-south, the world's premier sugar growing region.
Forecaster Telvent DTN reported that showers were continuing across cane areas of Brazil but the crop conditions were generally favourable with showery activity not that heavy.
"The early part of the crop may be difficult and therefore affect May flat price and May structure, as we saw yesterday, but longer term shows greater promise for the harvest," Sucden Financial said in a market note on Friday.
May raws on ICE rose 0.41 cent to close at 27.86 cents a lb, while May whites on Liffe rose $5.70 to end at $711.80 a tonne.
Cocoa futures also advanced as the market kept a close watch on the conflict in top grower Ivory Coast, but commercial buying helped give the market a lift.
"This is a fairly good level to lock in prices here, and especially to secure supplies," Smith said.
Up to one million Ivorians have now fled fighting in the main city Abidjan alone, with others uprooted across the country, the UN Refugee Agency (UNHCR) said in a sharp upwards revision of previous estimates.
May cocoa on ICE rose $39 to settle at $3,242 a tonne while July cocoa on Liffe climbed 35 pounds to close at 2,109 pounds a tonne. ------
