SOFTS-ICE sugar edges up but front month premium erased
* Speculators raise net shorts in ICE sugar and coffee
* Vietnam domestic coffee prices climb to 4-1/2 month high
* Dry weather poses threat to cocoa mid-crops in West Africa
(Adds quotes, byline, updates prices)
LONDON, Feb 25 (Reuters) - ICE raw sugar futures were slightly higher on Monday as the market extended a rebound from a multi-year low set earlier this month, aided partly by a weaker dollar but the wiping out of the front month's premium reinforced concerns about excess supplies.
Cocoa futures also edged up but arabica coffee slipped back with the market back on the defensive as a rebound from a recent multi-year low ran out of steam.
Front month March raw sugar on ICE slipped to level money with May <SB-1=R>, well below a peak of a premium of about 30 points last week.
The March contract is due to expire on Thursday and the weakness of the spread might show reduced appetite for taking delivery, Nick Penney of brokers Sucden Financial said.
Dealers said a large speculative short position in ICE sugar, however, meant the market was susceptible to sporadic short-covering rallies, although fundamentals remained bearish.
Speculators raised their net short positions in sugar contracts on ICE Futures U.S. to record highs in the week to Feb. 19, U.S. Commodity Futures Trading Commission data showed on Friday.
"We see potential for the upside in the short term based on the large spec short position, but expect selling to get heavier over 18.50, basis May, and the market to be capped at around 19 cents," Penney said in a market update.
March raw sugar futures on ICE stood 0.01 cent or 0.05 percent higher at 18.25 cents per lb at 1438 GMT while May rose 0.11 cent or 0.6 percent to 18.26 cents a lb.
The March contract fell to 17.87 cents earlier this month, the lowest level for the front month since August 2010.
Macquarie Capital analyst Kona Haque said the sugar market had now priced in a large global surplus but was also expecting Brazilian mills to shift production towards ethanol from sugar if low prices are sustained.
She also cited expectations for the eventual covering of the huge net short position held by managed money.
"At these prices, risks are more likely to be on the upside, rather than downside, and funds may want to start covering their shorts," Haque said in a research note.
May white sugar on Liffe rose $1.80 or 0.4 percent to $507.30 a tonne.
Arabica coffee futures on ICE were weaker although the market remained well above last week's multi-year low.
Dealers said the market was underpinned by concerns about a severe outbreak of roya leaf rust disease in Central America although a favourable crop outlook in top grower Brazil should ensure adequate supplies.
"While the problems in Central America continue to be a serious threat for next season's production, positive production developments elsewhere are countering this," Haque said.
May arabica coffee futures on ICE fell 1.30 cent or 0.9 percent to $1.4250 per lb. The contract dipped to $1.3760 on Feb. 19, the lowest level for the second month since June 2010.
Shawn Hackett, president of Hackett Financial Advisors, said there was scope for a significant rebound in prices.
"Coffee continues to find support at the decade long bull trend line. A bullish breakout is slated for the spring," Hackett said in a research note.
"The roya infestation for Central America coffee is getting worse and will likely provide the fireworks for a bull move."
May robusta coffee futures on Liffe fell $4, or 0.2 percent, to $2,083 a tonne.
Dealers pointed to a slowdown in robusta coffee exports from top producer Vietnam this month, although cumulative volumes for the first two months of this year are a marginal 1.5 percent below year-ago levels.
A shortage of coffee beans lifted domestic prices in Vietnam to their highest in four-and-a-half months on Monday, traders said, enticing some farmers to sell some of their meagre stocks.
Cocoa futures were slightly higher as the market kept a close watch on the outlook for coming West Africa mid-crops.
A relentlessly harsh dry season across Ivory Coast's main growing regions is affecting bean quality and threatens to delay early harvesting of the April-to-September mid-crop, farmers and analysts said last week.
"It is still too early to assess the outlook for the mid-crop, with the weather still quite dry and pods still underdeveloped, but there is time still," Macquarie's Haque said.
May cocoa futures on ICE rose $10 or 0.5 percent to $2,149 per tonne, while May cocoa on Liffe rose 14 pounds to 1,448 pounds.
(Editing by James Jukwey)