LONDON: Raw sugar futures rallied to a two-month high on Monday as speculators covered their short positions following a tax change in Brazil that will make ethanol more competitive, while arabica coffee rose to its highest in more than three months.
SUGAR
October raw sugar was up 0.49 cent, or 3.41 percent, at 14.86 cents per lb by 1331 GMT, after hitting 14.92 cents, its highest since June 1.
The Brazilian government decided on Friday to reduce a federal tax on ethanol by 8.55 centavos per litre, while maintaining the higher diesel and gasoline rates put in place earlier this month.
The move, which should be officially announced as soon as Monday, will make the biofuel more competitive, potentially prompting Brazilian producers to switch more of their output from sugar to ethanol, dealers said.
"Whilst it is expected that the next UNICA report will still show a high sugar mix due to the good weather during July, the ethanol parity is getting higher," said Nick Penney, senior trader at Sucden Financial. "The nearby sugar price advantage is eroding rapidly."
Sentiment was also boosted by a recent cut-back in the bearish stance held by speculators, with exchange data on Friday showing they trimmed their short position by 10,336 contracts.
October white sugar rose $9.90, or 2.54 percent, to $399.70 a tonne.
COFFEE
September arabica coffee extended last week's gains, climbing a further 1.2 cents, or 0.87 percent, to $1.3905 per lb, its highest since April 20.
September robusta coffee eased $4, or 0.19 percent, to $2,125 per tonne.
The July contract was set to expire on Monday.
Vietnam, the world's largest robusta producer, will export an estimated 941,000 tonnes of coffee in the first seven months of 2017, down 16 percent from the same period a year ago, the government said on Saturday.
COCOA
September New York cocoa slipped $8, or 0.38 percent, to $2,078 a tonne, reversing course after touching $2,096, its highest since June 13.
Dealers noted a positive close in the previous session helped lift prices in early trade, although technical resistance halted the advance.
The market rallied sharply last week on a wave of technical buying amid growing expectations for falling production in West Africa in the 2017-18 season.
December London cocoa fell 5 pounds, or 0.31 percent, to 1,605 pounds a tonne.