Commodities guru Rogers acquires taste for robusta market

November 18, 2012

RECORDER REPORT

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Commodities investment guru Jim Rogers told Reuters on Tuesday that he sees the NYSE Liffe market for robusta coffee futures nearly doubling in size as demand grows, with Asian consumers quaffing more of the traditionally Western drink. The Rogers International Commodity Index (RICI) recently announced it would take its coffee and cocoa components out of ICE Futures US and put them in Liffe, the European derivatives business of NYSE Euronext.

While the more expensive arabica coffee trades on ICE, robusta changes hands on Liffe. "(It's) mainly because robusta is taking market share and it's an Asian coffee," Rogers said of the reason for the shift. "My indexes are designed for consumption more than anything else and since the consumption is moving to Asia and moving to robusta, robusta is better for our purposes." Dealers have been scratching their heads since last week, when the shift was announced, as they tried to understand what prompted the move. Global production of and demand for robusta have been growing since the cost of arabica soared in 2011. In the 2011/12 crop year, robusta output reached a record at 53.3 million bags.

Global robusta exports increased by 13.2 percent to 41.8 million bags in the 2011/12 marketing year, versus 2010/11, while aggregate exports of arabica fell to 66 million bags, down 2.6 percent from the previous year, International Coffee Organisation data shows. Though arabica prices have dropped about 50 percent from their 34-year high above $3 per lb in May 2011 to $1.5125 per lb on Tuesday, exports have been falling as many roasters increased robusta purchases.

Liffe robusta futures closed Tuesday at $1,902 per tonne, a nine-month low. This is roughly 65 cents per lb cheaper than arabica. ICE arabica coffee currently accounts for 2 percent of the RICI index, while cocoa is at 1 percent. When asked the value of the index, Rogers said: "I'm a little superstitious, I don't want to know." Market sources estimate the value of the RICI at $400 million to $650 million, a small amount compared to some other commodity indexes. This would put the value of its coffee futures contracts at roughly $8 million to $13 million, and cocoa at $4 million to $6.5 million.

This equates to a rough estimate of only 170 lots of arabica and 210 lots of cocoa on ICE Futures US Because of the index's small size, dealers do not expect the shift to impact the market price when it takes place in January. Robusta is by far the smaller of the two coffee futures markets, with its open interest - a measure of investor activity - at around 80,000 lots. That's down more than 40 percent from the roughly 140,000 lots in arabica futures on ICE. Rogers said he sees the open interest in robusta futures on Liffe growing to be on par with arabica "over time".