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SOFTS-Raw sugar down but above 3-week low, cocoa mixed

Marcy Nicholson and Sarah McFarlane
Thursday, 25 Oct 2012 | 7:44 PM ET

* Large number of Brazil mills still open for crushing

* ABN Amro sees coffee prices near current level for Q4

* ICE cocoa December/March spread narrows, boosts volume

(New throughout, updates prices; adds trader comment, second byline/dateline)

NEW YORK/LONDON, Oct 25 (Reuters) - ICE raw sugar futures inched lower on Thursday, hovering above a three-week low on pressure from fast progress in Brazil's harvest and surplus supplies, while cocoa was mixed as dealers focused on the narrow ICE March/December spread.

Coffee futures inched higher in thin dealings.

March sugar futures closed down 0.15 cent, or 0.8 percent, at 19.53 cents a lb, just up from Wednesday's three-week low of 19.45 cents.

Dealers noted that the large number of mills still open for crushing in Brazil should aid sugar production for the tail end of the crop, assuming the weather remains favorable.

Brazil's production accelerated in October, but rains that have already hit the main center-south growing region are set to make work difficult for mills in the coming weeks, cane industry association Unica said on Wednesday.

December white sugar on Liffe settled down $1.90, or 0.3 percent, at $543.80 per tonne.

Weak demand on the physical market also pressured sugar prices.

``Demand is not really showing, which is why the futures market is edging lower,'' said James Kirkup, director of sugar brokerage at ABN Amro in London. ``It looks like the market will trade sideways to down, as opposed to sideways to up, in the coming weeks.''

Dealers said that surplus sugar supplies and lower prices could trigger the channelling of more cane into ethanol production.

``An ample supply of sugar on the market, and the resulting drop in prices, makes ethanol production more attractive,'' Commerzbank said in a daily commodities note.

``The price of sugar will therefore probably not remain ... below 20 cents per pound for long. There is no sign yet, though, of demand picking up much in response to lower prices.''

Cocoa prices were mixed but on ICE, volume was heavy with the focus on the December/March spread, earlier than usual, and ahead of the index roll scheduled for early November.

ICE December cocoa settled up $3, or 0.1 percent, at $2,402 per tonne, digesting losses after tumbling more than 4 percent the previous session, when sell stops were triggered by technical selling.

The contract traded on both sides of its 100-day moving average at $2,389 per tonne.

``There's definitely been a fair amount of Dec/March switching. You're probably seeing some trade-type buying of it,'' one U.S. dealer said. ``They seem to be impatient on it, not waiting for the index rolls.''

The December/March spread closed at $10 per tonne, narrowing in from $14 on Wednesday.

``It's a three-month switch and it should be wider, and the fact that it's narrow, it makes people nervous,'' the U.S. dealer said.

Liffe March cocoa futures finished down 5 pounds at 1,554 pounds per tonne, finding support just above the 200-day moving average at 1,535 pounds per tonne.

The Liffe December/March spread continued to hold a small premium, and settled at 2 pounds, from 4 pounds the previous session.

ARABICA NUDGES UP

Arabica coffee futures on ICE were quietly higher along with the commodity complex, with December finishing up 1.20 cents, or 0.8 percent, at $1.6100 per lb. The contract hit $1.5715 last week, the lowest level for the front month since Sept. 6.

Total volume was light, at around 12,600 lots, down more than 35 percent from the 30-day average, preliminary Thomson Reuters data showed.

A global 2012-13 surplus of arabica beans is expected to weigh on prices.

``Production and consumption forecasts point to a production surplus; global stocks will be rebuilt,'' ABN Amro said in a commodities note, forecasting that coffee prices would remain near current levels for the fourth quarter.

Strong demand for robusta coffee from emerging markets continued to be the main driver for overall coffee demand growth, dealers and analysts said.

``Coffee consumption in emerging markets is benefiting from a growing private consumption, rising levels of urbanization and also a developing coffee culture,'' ABN Amro said.

``In traditional markets, coffee consumption will decrease slightly due to market saturation and poor macroeconomic growth prospects.''

January robusta coffee futures edged up $1 to settle at $2,058 a tonne.

Dealers said Vietnam had harvested around 10 to 15 percent of its crop and hedging pressure was expected to weigh on the Liffe market in the coming weeks.

(Additional reporting by Clare Hutchison in London; Editing by Jane Baird, Jason Neely and Peter Galloway)