ICE coffee down 1pc, near 2-1/2-year lows; sugar up

NEW YORK/LONDON: ICE arabica coffee futures fell on Wednesday, hovering close to 2-1/2-year lows on plentiful supplies, while raw sugar rose on a flurry of short covering even as the market struggled to absorb excess supplies.

Breaking a three-day losing streak, New York cocoa recovered slightly from seven-month lows hit a day earlier.

Dealers said the prospect of large crops in Brazil this year was exerting downward pressure on coffee and sugar prices with both markets already oversupplied.

May arabica coffee futures on ICE were down 1.60 cents or 1.12 percent lower at $1.4165 per lb at 12:44 p.m. EDT ( 1744 GMT). The contract was close to Tuesday's intraday low of $1.4125, its weakest since June 2010.

Betting on improving supplies from Brazil, the world's top grower, speculative investors have built a large net short position.

"It's another market that continues to be in oversupply. There's really no urgency for (speculative investors) to cover," said a veteran US trader.

Hedge funds were rolling forward short positions when prices dipped below $1.40, while above that level there appeared to be origin selling, Rabobank senior analyst Keith Flury said.

May robusta coffee futures on Liffe settled unchanged at $2,092 a tonne.

Dealers were trading the March/May spreads in ICE coffee, cocoa and sugar on the last day of the index fund role, with dealers noting activity by Goldman Sachs and UBS.

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Short-covering propeled raw sugar futures on ICE higher even as the market braced for the upcoming bumper sugar cane harvest from Brazil, the world's No. 1 producer.

The front month moved to a premium to the second month for the first time since November in the run up to the options expiry at the end of this week. It was around 0.10 cent on Wednesday.

"There's probably a little bit of short-covering on the March going to the premium," said the US trader.

March raw sugar futures on ICE were 0.16 cent or 0.9 percent higher at 18.24 cents a lb. The market touched 18.03 cents on Friday, the lowest price for the benchmark front month since August 2010.

"It appears that ongoing concern about current surplus supplies is keeping the bearish tone in the market," Commonwealth Bank of Australia analyst Luke Mathews said in a market note on Wednesday.

"This is despite recent reports that Brazilian ethanol prices are now trading at a premium to sugar and that production in India and Thailand may disappoint in 2013," he added.

March white sugar on Liffe rose $13.2 or 2.73 percent to $497.3 per tonne, its loftiest level in a week.

Dealers said the key focus was the expiry of the front month later in the day. They estimated around 80,000 to 100,000 tonnes of white sugar was likely to delivered against the contract, mainly from Guatemala.

In New York cocoa, most of the volume was linked to rolling forward positions out of March ahead of Thursday's first notice day for the front month contract.

The March-May spread widened to as high as $27 as the spot price fell to its lowest level since June last year on long liquidation.

"There are some panicked longs getting out of the market. You've got notices coming out tonight. If you don't want to stop cocoa, you don't want to be long," said the US trader.

The weak pound versus the US dollar also added some market pressure, the US trader said.

March settled at $2,143 per tonne, down 1.65 percent. May futures settled unchanged at $2,170 per tonne. It hit aseven-and-a-half-month low a day earlier.

Cocoa futures on Liffe edged up, although the market remained within striking distance of the prior session's 10-month low.

Dealers said the market had been weighed by forward selling of 2013/14 West African crops, but the scope for further losses may be limited with production stagnant and grindings seen rising slightly during the next couple of seasons.