--Difference in prices ends day at 81.419 cents a pound

--Roasters likely to keep current blends as long as customers buy

--Arabica prices down more than 23% this year, while robusta is up 20%

 
   By Leslie Josephs and Neena Rai 
   Of DOW JONES NEWSWIRES 
 

NEW YORK (Dow Jones)--The price gap between arabica and robusta coffee is near its narrowest in almost two years, as arabica prices slip while robusta perks up.

The front-month spread settled Monday at 81.419 cents a pound. Robusta for May delivery on London's Liffe exchange settled up 0.8% at $2,116 a ton, while arabica for May delivery gained 0.5% to settle at $1.7740 a pound on the ICE Futures U.S. exchange.

The difference in prices is closely watched by coffee roasters, who often substitute some less-expensive robusta for arabica in their beverages when arabica prices are high. This time, however, it is unlikely that roasters will change their blends.

"If they maximized the number of robustas, if it was accepted by the customers, there's really no reason to go back," said an executive at a major U.S. coffee roaster. "In the end, it's the customer who dictates what they buy."

Substitution was in earnest last year, when arabica prices soared to a 14-year high. This year, arabica futures have dropped more than 23% as a larger on-cycle harvest from top grower Brazil has weighed on prices. At the same time, robusta futures have gained close to 20%, in part due to farmers in Vietnam, the world's largest producer of the coffee variety, holding on to their crops while waiting for higher prices.

Brazilian farmers are expected to use that same strategy later this year, which could support prices for arabica.

"The expectation is that the roaster buying should materialize in the coming months and that Brazilian [farmers] selling as soon as they have the beans might be overly optimistic," said Keith Flury, a senior commodities analyst at Rabobank.

Roberio Oliveira Silva, head of the London-based International Coffee Organization, recently said arabica prices will likely rise in the second half of 2012.

"There is strong demand, but actually, we're not seeing much coffee on the market. And I don't think the Brazil crop will bring loads of coffee. So, the future is definitely brighter," he said in an interview.

-By Leslie Josephs and Neena Rai, Dow Jones Newswires; 212-416-4055; leslie.josephs@dowjones.com

(END) Dow Jones Newswires

May 14, 2012 14:29 ET (18:29 GMT)

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