SOFTS-Sugar dips, cocoa rebounds

* Macquarie sees biggest drop in grind in 5 years

* Sugar eases as end-user demand dries up after rally

LONDON, Sugar futures eased on Tuesday in a modest setback after last week's rally to a 2-3/4 year high, while London cocoa rebounded from early losses on industry buying, dealers said.

Arabica coffee rose with the market's strong performance during the last few days triggering chart-based buying.

Cocoa futures in London were steady, with industry buying helping the market recoup early losses driven by weakening global demand.

Dealers noted that Macquarie Bank commodity strategist Kona Haque had said that global cocoa grindings were forecast to fall 4-5 percent year-on-year in 2008/09.

"It's a significant drop," she told Reuters financial television. "They (global grindings) haven't had a significant drop like this for, I think, 5 years."

Responding to Haque's grindings forecast, one London dealer said, "It may even be a little bit worse. There is a lot of bearish news out there.

The dealer said the drop in global grind in 2008/09 could be between four and seven percent.

Haque said she expected the April-September 2008/09 mid crop in Ivory Coast, the world's top cocoa grower, to be 275,000-300,000 tonnes, down from about 320,000 tonnes in 2007/08. Her forecast was in line with the market consensus.

Dealers also noted disappointing Q1 grindings data from Malaysia, Asia's largest cocoa grinder, down 17.9 percent.

July cocoa in London was unchanged at 1,672 pounds a tonne at 1430 GMT. The contract earlier touched 1,653 pounds, its lowest level since February 24.

"There is quite a bit of industry support here," one dealer said.

SUGAR PHYSICAL DEMAND FADES

Cocoa futures on ICE were higher, underpinned by the weakness of the dollar against the pound, with July up $53 at $2,374 a tonne.

Sterling rose broadly on Tuesday, hitting a four-month high against the dollar, buoyed by an improvement in risk appetite which also propelled shares higher.

Sugar prices slipped back slightly after last week's strong advance with demand in the physical market largely drying up after a rally to a 2-3/4-year high on Friday.

"There is a lack of buying from end-users," said Nick Hungate, a softs trader with Rabobank.

"I think we could fall at least 1 cent (per lb) without impacting the bullish cornerstone of the market."

He was referring to India's appetite for sugar after the world's largest consumer swung to net importer from exporter.

A European broker said industry buyers were likely to wade in on the dips.

"Whether the market has to come back to end-buyer levels or end-buyers simply have to pay up at some point, the market still needs sugar," the broker said in a daily report.

Sucden Financial said in a daily market report, "It is more than likely the weight of producer selling will, in the short term, have July testing 14.70-14.60 cents a lb."

ICE July raw sugar futures were down 0.13 cent to 14.89 cents per lb at 1430 GMT.

London August white sugar futures were down $2.70 at $439.30 per tonne.

Coffee prices were higher with arabica futures on ICE climbing to a three-month high.

Dealers said the market's strong performance during the last few days had triggered chart-based buying.

source: reuters