London coffee ends down after touching highs

LONDON, Sept 6 (Reuters) - London front-month robusta coffee futures settled lower on profit-taking on Wednesday after touching a fresh 7-1/2-year high for the third day this week on short covering, dealers said.

"The market took a bit of a breather today," one dealer said, adding trading has been relatively quiet compared with previous sessions.

Front-month September ended down $24, or 1.2 percent, at $2,000, the bottom of the day's range, after touching a peak of $2,063, its highest since November 1998. Total volume was a moderate 11,651 lots.

"Pain is undoubtedly being inflicted on some 'naked' shorts," UK-based broker Sucden said, referring to those who had bet on a price fall by selling.

The front-month has risen about 12 percent since Monday and prices are about 40 percent higher than at the start of the year.

News of flood damage to exchange stocks in Italy just as supplies from the world's number one robusta producer Vietnam started to run out lifted the market in recent weeks.

"Speculators like the London market -- they make money buying it," Sucden added in a daily note.

Traders and analysts said it seemed that a large fund had taken a long position and either trade or industry buyers were struggling to cover their short positions, driving up the September contract.

LIFFE's issuers and receivers report for September robusta showed Fortis Bank had taken delivery of 1,496 lots out of 1,514 offered for tender since September 1, when the front month went into its delivery period.

PREMIUMS UP

Traders said the premium for the September over the benchmark November contract might increase significantly from its present level around $411, around its highest for several years.

"It (premium) could go further yet. If the shorts can't get hold of the coffee, it could go to $600, $700 even $800," a trader said.

Analysts said tight supply would keep prices high until 2008 and the premium between the front two months could grow until March.

Dealers said news of light frosts in Brazil, the world's key coffee producer, was feeding already bullish market sentiment, but without propelling the market significantly higher.

"It seems... people have already factored it in," one dealer said of the latest weather news.

A light ground frost was seen on some properties in Brazil's main coffee region in South Minas Gerais state overnight, with temperatures ranging from 3 to 5 degrees Celsius (37-42 Fahrenheit), industry workers said.

London's benchmark November contract, which had risen on the back of spill-over buying to hit a 7-1/2-year high of $1,618 in the previous session, trading down on profit-taking earlier in the session but then rallied.

The November contract settled up $6, or 0.4 percent, at $1,589 after moving between $1,604 and $1,565.

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Nybot Coffee Review: Up Slightly After Scaling Tue High

NEW YORK (Dow Jones)--Arabica coffee futures ended firmer on the New York
Board of Trade on Wednesday after the market recovered from a test of Tuesday's
low and briefly scaled that day's highs with speculative buying.
December closed up 5 points at $1.1035 a pound and March gained 5 points to
$1.1415.
"We took a peak at the downside gap, but recovered with speculative buying
and short covering," a desk trader said. "A fund that's believed to be short
New York and long London was a seller again today, and has been selling
recently."
"Brazil's been dry, but they're heading into the rainy season so it's too
early to say they're in a drought," he continued. "It's surprising that Brazil
had some frost this morning and yesterday, but it was patchy and mostly away
from growing areas."
The Nybot December-March spread ended at 380 points, unchanged from Tuesday.
Futures volume was estimated at 9,591 lots and in the options ring, 5,861
calls and 2,829 puts traded.
Light frost in southern Minas Gerias, Brazil early Wednesday posed little
threat to trees, traders said. Brazil's groves should be mostly dry through
Saturday, according to DTN Meteorlogix. Rain has been below average in most
Brazilian coffee areas for months, and moisture is needed for the October bloom
of the next crop.
Brazil in August exported 2,458,524 bags, up 19% on the year, according to
the Green Coffee Exporters Council.
Meanwhile, North American and European roasters are procuring beans to meet
peak winter demand.
Coca-Cola (KO) on Wednesday introduced coffee and tea beverages, under the
brand name Far Coast, in Toronto.
Tightness in Asian robusta beans continues to buoy Liffe, and is in turn
helping New York prices.
Nybot December finds support at a gap at $1.0920 to $1.0845 and resistance at
$1.1120-$1.1125, $1.1150, $1.12, $1.1225 and $1.1250.
Nybot October coffee options expire Friday.