February 18, 2014 / 7:51 PM / 6 years ago

SOFTS-Brazilian drought recovery concerns propel coffee to 1-year high

(Recasts first paragraph, updates closing coffee/sugar prices, adds trade comment)

* Arabica coffee hits highest level since Jan 2013

* Raw sugar up nearly 3 pct in heavy volume

* Cocoa futures on ICE fall from 2-1/2-year high

By Marcy Nicholson and Sarah McFarlane

NEW YORK/LONDON, Feb 18 (Reuters) - Coffee futures on ICE closed up nearly 9 percent in heavy volume at their highest price in a year on Tuesday, as light rains fueled concerns over drought-damaged crops in top grower Brazil and galvanized investors to increase holdings of the commodity.

Sugar also soared, while Liffe robusta touched a six-month high, and cocoa markets were little changed after the U.S. market touched a 2-1/2-year high.

May arabica coffee futures on ICE soared 12.55 cents, or 8.8 percent, to settle at $1.5485 per lb, its biggest one-day gain since November 2004. Earlier the contract reached $1.5665, a 10-percent jump and the highest since January 2013.

“A lot of the spec trade continues to build their long position here on the idea that we’re going to continue riding this roller coaster higher as the lack of rain perpetuates the idea of yield losses down the line,” said Hector Galvan, senior softs broker at RJO Futures in Chicago, referring to Brazil’s coffee belt.

The contract soared 10 percent in early dealings before most U.S. traders were even at their desks, setting a bullish tone for the session. Arabica was the strongest performer by far on the Thomson Reuters/CoreCommodity CRB Index for the session as well as well as year-to-date.

“How much we move prices higher really depends on how long this weather sticks around because if it’s short-term, we may not lose as much coffee as people imagine we could lose,” Galvan said.

One U.S trader said funds were both taking on new long positions and covering their shorts on the belief that Brazil will not get as much rain as it needs to recover from the drought. Producer selling was light compared with earlier this month.

“I think we have a lot more upside,” the U.S. trader said.

Total volume surged above 66,000 lots, triple the full day’s average.

Dry conditions in Brazil have persisted to the extent that many now believe the country’s production will be curbed, giving credence to deficit forecasts. Brazilian forecaster Somar said light rainfall will continue after three days of heavier rains broke a long period of drought, though rains will ease in some regions.

U.S.-based meteorologist Commodity Weather Group reported that rainfall deficits will continue and it said it has low confidence in its 16- to 30-day forecast for near-normal to below-normal rain.

The market has soared 50 percent in 3-1/2 months, with the bulk of the rally spurred by concerns about crop-damaging drought in parts of top grower Brazil. The move spurred speculators to switch to a net long position for the first time since 2011.

ROBUSTA FOLLOWS

Liffe May robusta coffee rose $57, or 3.1 percent, to finish at $1,875 a tonne, after earlier hitting $1,887, the highest level since August.

Sugar dealers also eyed Brazil’s weather after six weeks of hot, dry conditions across the main farm belt, and Unica, the country’s industry association, stated that its 2014/15 cane crop will suffer.

ICE March raw sugar futures ended up 0.53 cent, or 3.4 percent, at 16.16 cents per lb. Total volume vaulted above 262,000 lots, more than double the full day’s average.

“The much-needed rain received in Brazil is a piece of good news, but it would not be able to save the damaged crop,” said Vanessa Tan, an investment analyst at Phillip Futures.

May white sugar futures on Liffe climbed $11.70, or 2.6 percent, to close at $455.90 per tonne.

In cocoa, markets quietly held near 2-1/2-year highs as dealers monitored the tailing off of port arrivals in Ivory Coast.

May cocoa on ICE settled down $8, or 0.3 percent, at $2,959 a tonne, after hitting a 2-1/2 year high of $2,985, while May cocoa on Liffe eased 6 pounds, or 0.3 percent, to close at 1,852 pounds a tonne. (Editing by Jane Baird, Veronica Brown, Peter Galloway and Marguerita Choy)

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