SOFTS-ICE sugar sets 2-1/2 yr low on Brazil cane outlook
* Sugar weighed by prospect of larger Brazil cane crop
* Reuters poll sees higher coffee prices by year-end
* Cocoa creeps higher with global deficit anticipated
(Adds quotes, updates prices)
LONDON, Jan 23 (Reuters) - Raw sugar futures on ICE fell to the lowest level in around 2-1/2 years on Wednesday as the prospect of a large cane crop in top producer Brazil heightened concerns about excess supplies while arabica coffee and cocoa edged higher.
March raw sugar futures on ICE stood 0.02 cent or 0.1 percent lower at 18.10 cents a lb at 1301 GMT after earlier falling to 18.06 cents, the lowest level for the front-month since August 2010.
Dealers said a favourable crop outlook in Brazil added to bearish sentiment on fundamentals with the market already struggling to absorb a substantial global surplus in 2012/13.
The scope for further losses was, however, seen limited.
"We believe sugar prices are now hovering at the marginal cost of production which implies current levels are a good support," Standard Chartered analyst Abah Ofon said in a research note on Wednesday.
Brazil's center-south cane belt should produce around 585 million tonnes of sugar cane in the 2013/14 season, or roughly 10 percent more than in the soon-to-end 2012/13 crop year, after intensive replacement of less productive plants, the head of cane industry association Unica said in an interview on Tuesday.
A switch in the use of cane towards ethanol in Brazil could, however, help to underpin prices with the government expected to increase the mandatory blend of ethanol in gasoline to 25 percent from 20 percent later this year.
"News like Unica expecting a record large cane harvest is making prices go down at the moment but the other side is there will be a higher share of sugar cane in ethanol production," Commerzbank analyst Michaela Kuhl said.
"We expect the government to increase the share of ethanol in gasoline back to 25 percent around summertime," she said, adding she believed the current prices did not fully reflect the anticipated switch in cane from sugar into ethanol production.
A slump in cane output caused the government to reduce the mandatory blend of ethanol in gasoline to 20 percent from 25 percent in 2011.
March white sugar on Liffe fell $1.70 or 0.35 percent to $481.50 per tonne. The contract dipped to $481.10 earlier in the session, the lowest level for the front month since June 2010.
COSTA RICA EMERGENCY
Arabica coffee futures on ICE were higher with the market regaining some ground after the prior session's steep setback.
Dealers said the market remained underpinned by concerns about the spread of a tree-killing fungus known as roya in Central America, producer of a fifth of the world's arabica.
Costa Rica on Tuesday declared an emergency to tackle the spread of a coffee fungus that has already devastated Central American producers and looks set to destroy about 12 percent of Costa Rica's planted coffee in the upcoming 2013/14 harvest.
"We think that prices are too low because although the (supply) situation is relatively good, it is not as good as the market expects especially if these roya problems really materialise," Kuhl of Commerzbank said.
"It (roya) seems to be quite a drastic problem at the moment and might be a long-term problem."
March arabica coffee futures on ICE rose 0.55 cents or 0.4 percent to $1.4915 per lb.
A Reuters poll on Wednesday projected higher prices for arabica coffee by the end of the year with the market clawing back some of last year's steep losses.
March robusta coffee futures on Liffe rose $7 or 0.4 percent to $1,945 a tonne.
Cocoa futures were also higher with March futures on ICE up $4 or 0.2 percent to $2,217 per tonne, with the market consolidating above this month's low of $2,206, the weakest level for the front month since July 2012.
Dealers said the market was supported by mildly constructive fundamentals with a Reuters poll on Tuesday projecting a global deficit in 2012/13 and higher prices by the end of the year.
May cocoa futures on Liffe rose 2 pounds or 0.1 percent to 1,450 pounds a tonne.
(Reporting by Nigel Hunt; Editing by Alison Birrane)