Cocoa futures on Liffe dropped to a five-month low in heavy volume on Wednesday as origin selling and speculative long liquidation spurred falls below key levels, while raw sugar fell stalling a rebound from its lowest levels in more than two years. Arabica coffee futures on ICE turned higher in seesaw dealings, but remained near last week's 2-1/2 year low, as increasing supplies from Brazil and Central America weighed on prices.

Cocoa futures dropped on both Liffe and ICE, extending losses after falling below recent lows, triggering chart-based selling, dealers said. May cocoa futures on Liffe closed down 27 pounds, or 1.8 percent, at 1,492 pounds a tonne after touching 1,490 pounds, the lowest for the second month since mid-July. Long liquidation was triggered near 1,515 to 1,510 pounds per tonne, dealers said.

Dealers said origin selling this week had exerted some downward pressure on prices and that buying by trade and industry had been scaled down. "Whether or not we're going to break below the range and force weak longs out, it's a distinct possibility," a London-based broker said. The US market felt pressure from the larger London cocoa market, with some investors holding long positions liquidating around $2,385-$2,369 per tonne, basis the ICE March contract, dealers said.

March cocoa futures on ICE settled down $39, or 1.6 percent, at $2,358 a tonne, the spot contract's weakest finish since November 9. Raw sugar futures on ICE were slightly lower, with March closing down 0.16 cent, or 0.8 percent, at 19.23 cents a lb. Total volume was light at just over 40,000 lots, less than half its 30-day average, ahead of the Christmas holiday early next week. The contract has rebounded in recent sessions, after dipping last week to 18.31 cents, the lowest for the benchmark front month since August 2010. March white sugar on Liffe fell $3.10, or 0.6 percent, to close at $517.80 per tonne.

March arabica futures on ICE closed up 0.90 cent, or 0.6 percent, at $1.4490 per lb, after hitting a session low at $1.4270. The contract dipped to $1.4220 last week, which was the lowest level for the then second month since June 2010.

Prices have fallen by more than 50 percent from a highs set in May 2011 and may be set to consolidate around current levels. ICE March coffee may slide more to $1.40 per lb and then bottom around there, according to Reuters analyst Wang Tao. Robusta coffee futures on Liffe were higher, with March settling up $27, or 1.5 percent, at $1,869 a tonne.

Copyright Reuters, 2012