Cocoa and coffee climb as bulls in charge

MARKETS-SOFTS (UPDATE 3)

* System funds buying seen driving cocoa prices

* Soft dollar boosts coffee, sugar markets (Recasts, updates prices; adds NEW YORK byline/dateline, previously LONDON)

By Rene Pastor and Anna Yukhananov

NEW YORK/LONDON, Jan 21 (Reuters) - Cocoa futures closed at a fresh 8-1/2-month peak for the second day in a row on Friday, while arabica coffee rallied to within sight of a 13-1/2-year peak as bullish fundamentals fired both markets higher.

Cocoa's strength was inspired by fears of supply disruptions in top grower Ivory Coast, where a political deadlock was edging closer to open civil war.

Arabica coffee soared on investment fund buying, tight supplies of high-quality beans and the belief that demand is expanding in non-traditional markets, such as China and India.

Another bullish factor for coffee was the fall of the dollar to a two-month low against the euro, driven by Asian sovereign demand and improving confidence in the euro zone. A weaker dollar makes dollar-denominated commodities cheaper in terms of other currencies.

New York's March cocoa contract gained $6 to close at $3,184 per tonne, the highest settlement close for the spot contract since May 2010. Over the past 3 sessions, the contract had gained almost 5 percent in value.

London's May cocoa contract added 12 pounds to end at 2,114 pounds per tonne, the highest close since Aug. 9.

The March arabica coffee contract on ICE Futures U.S. jumped 8.60 cents, or 3.7 percent, to end at $2.4040 per lb, having hit a session top of $2.4180, shy of the 13-1/2-year peak at $2.445 hit last week.

London's March robusta coffee contract rose $34 to end at $2,149 per tonne.

Sterling Smith, an analyst for brokers Country Hedging Inc in St. Paul, Minnesota, said cocoa remained strong because of "nervousness about the situation in the Ivory Coast going into the weekend."

"Undoubtedly, the political situation in Ivory Coast is of very grave concern to everybody," said Jonathan Parkman, joint head of agriculture at Marex Financial Ltd. "It looks as if it's sliding almost remorselessly towards a physical solution, rather than a political solution."

The cocoa market has been pushed higher by uncertainty over the supply pipeline from Ivory Coast, the world's top producer, after a bitterly disputed election on Nov. 28.

Parkman added that investment funds were also pushing cocoa higher, with commercial purchases piling in as a driver in the market.

"They (commercials) want to take delivery of their cocoa right now that's in storage. That's why we just went into backwardation. They're saying they need that supply immediately," said Scott Joss, president of brokerage Cleartrade Commodities in Chicago.

Coffee powered higher, inspired by a bullish fundamental picture, which could hoist prices easily past its 13-1/2-year top.

"We are not going to have enough coffee where demand is going," Smith said, adding that heretofore non-coffee markets like China and India were increasing their bean consumption.

"I think we can take coffee over $3 (per lb)," he added.

Sugar futures were well supported by a weak dollar as well as the possibility of an import duty cut in Russia, a leading importer of raw sugar.

The customs union of Russia, Kazakhstan and Belarus may cut import tariffs for raw cane sugar to $50 per tonne in March, following a drop in domestic beet sugar production due to a drought, a market source and analysts said.

"Overall, we continue to expect the market to be generally higher over the coming weeks from a fundamental perspective," Thomas Kujawa of brokerage Sucden Financial said in a note.

The March raw sugar contract climbed 1.02 cents, or 3.3 percent, end conclude at 32.33 cents per lb, while London's March white sugar futures rose $22.40 to end at $790.70 per tonne.

(Source: http://www.forexyard.com/en/news/SOFTS-Cocoa-and-coffee-climb-as-bulls-in-charge-2011-01-21T202919Z)