* Robusta versus arabica price difference widens
* Industry buying underpins cocoa (Adds trade comment, updates prices)
By Sarah McFarlane
LONDON, March 6 (Reuters) - Arabica coffee futures on ICE eased off a two-year high on Thursday, with uncertainty over the extent of damage to top grower Brazil’s crop from dry weather keeping market participants on edge.
Unseasonably dry weather in January and February has propelled arabica coffee prices around 76 percent higher since the start of the year.
ICE second-month arabica futures slipped 3.5 cents or 1.7 percent to $1.99 per lb as of 1317 GMT.
“The question is how do you factor in the uncertainty of what will be next year’s crop,” said Alex Parry, coffee broker at ABN AMRO, referring to the effects of the drought.
“It’s an immensely difficult subject to quantify and I think it’s part of the reason you’ve seen a pickup in the options open interest.”
Robusta coffee prices have also jumped, although their move was not of the same magnitude, having risen around 25 percent since the start of the year. This has widened the difference in price between the two coffee varieties.
Roasters may switch to using more of the cheaper, lower quality robusta as a result of the price moves.
“London (robusta coffee) as a value trade makes a lot of sense. The arb has gone to over 100 cents, what does that mean for the users of coffee, it means the robusta market holds more and more value,” said Parry.
“It leaves industry going if we can’t buy arabica, let’s buy robusta, because the supply and demand picture is going to change if prices stay where they are,” Parry added.
May Liffe robusta coffee was up $29 or 1.4 percent at $2,094 per tonne, having on Tuesday touched a one-year peak of $2,136 per tonne.
Sugar futures hit a four-month high, also underpinned by the dry weather in top grower Brazil, although analysts warned that the rally could lose momentum as short covering peters out.
“We are still wary that speculative short covering has also had a significant role to play in pushing values higher,” said Luke Mathews, commodities strategist at Commonwealth Bank of Australia.
“History shows that short-covering rallies do come to end, often abruptly.”
May raw sugar on ICE was up 0.15 cent or 0.8 percent at 18.38 cents a lb, having earlier peaked at 18.42 cents, its highest level in four months.
May white sugar futures on Liffe rose $3.60, or 0.7 percent, to $488.70 per tonne.
In cocoa, ICE May cocoa futures were down $3 at $2,967 per tonne.
Dealers said that industry buying at levels just below the market was likely to keep prices underpinned.
“We have had dips but they have been short lived as industry are looking at any sizeable decline as an opportunity to reload their cover,” said a London-based broker.
May cocoa futures on Liffe edged up 2 pounds to 1,851 pounds a tonne. (Editing by Keiron Henderson)