SOFTS-Arabica coffee ends at 13-yr top, sugar mixed

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Friday September 03, 2010 10:15:18 PM GMT

* Weather woes to trim 2010/11 sugar output

* Diminishing exchange stocks underpin arabica coffee (Recasts, updates prices, market activity to U.S. close; adds second byline, dateline, previously LONDON)

By Rene Pastor and David Brough

NEW YORK/LONDON, Sept 3 (Reuters) - Arabica coffee futures rallied late on Friday to within hailing distance of a 13-year top while raw sugar futures slipped from a six-month high although the sweetener could surge after a holiday weekend.

Cocoa futures bounced to go into the weekend with upward momentum after losing ground the last few sessions. U.S. markets will be shut Monday for the Labor Day holiday, with trade resuming on Tuesday.

Softs markets showed little reaction after the release of stronger-than-expected U.S. employment data which calmed fears of a double-dip recession.

Arabica coffee futures embarked on a late buying spree, with the key December arabica coffee contract trading as high as $1.8835 a lb, near the 13-year peak of $1.8865 hit last week.

New York's December arabica coffee contract gained 2.10 cents to finish at $1.8695 per lb, the highest settlement close for the second position arabica coffee contract since early September 1997.

But London's November robusta contract shed $2 to end at $1,639 per tonne.

U.S.-based dealers said the coffee market climbed on fund buying and a lack of producer selling, as growers either don't have anything to sell or were holding back on the expectation that prices will bound even higher.

"I think they want to push it to $2. I think funds are going to drive this thing," said Jimmy Tintle, analyst with Transworld Futures in Tampa, Florida.

Robusta coffee futures on Liffe ended lower and the arabica premium widened further. Robustas are weighed by an expected increase in the size of the crop in top producer Vietnam. (Graphic: http://link.reuters.com/tax39n )

RAW SUGAR SLIPS, BUT RALLY INTACT; COCOA FIRM

Raw sugar futures were softer but did not pull back far from its 6-month highs, supported by expectations the global sugar market is likely to be in equilibrium rather than in surplus in 2010/11.

Adverse weather in countries such as Russia and Pakistan has reduced the outlook for world production. Demand is expected to remain strong and even rise on the year.

Dry weather prompted the Brazilian government to lower its forecast for the 2010/11 sugar crop, and it is likely to hurt next year's crop yields as well.

ICE Futures U.S. key October raw sugar contract dropped 0.21 cent to end at 20.60 cents per lb. London's October white sugar futures rose 10 cents to conclude at $592.30 per tonne.

"Overall, it seems we are to continue sideways to higher with key support at 20 cents/lb from now on," said Thomas Kujawa of Sucden Financial Sugar.

Alex Oliveira, senior sugar analyst at brokers Newedge USA, said sugar is headed higher. "The next target is the 50 percent retracement," he said of the level around 21.70 cents.

The 21.70 cents level is the exact halfway point between the 29-year peak at 30.4 cents hit during the raw sugar rally which climaxed in February and the one-year low of 13 cents when its correction bottomed in May.

U.S. cocoa futures climbed on good volume and manufacturer buying at the start of what is believed to be a seasonal pre-harvest rally just ahead of top grower Ivory Coast's harvest, dealers said.

The strong pound against the U.S. dollar also helped give the market a boost. The market has corrected higher in the past few sessions, after hitting the lowest level in more than a year earlier in the week.

"It's oversold but it just kind of settled out. There's no real driving factor to drive it down more," Tintle said.

New York's December cocoa contract added $37 to end at $2,772 per tonne. London's December cocoa futures gained 7 to finish at 1,952 pounds per tonne. (With additional reporting by Marcy Nicholson in New York and Nigel Hunt in London; Editing by David Gregorio)

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