London, Oct 2 - A strong dollar drove down soft commodity prices on Thursday with arabica coffee futures on ICE sliding to their lowest level since December 2007.
"The strong dollar is really penalising soft commodities," said Romain Lathiere, a fund manager at Swiss-based Diapason Commodities Management, adding key support levels had been breached on coffee.
The dollar touched a near 13-month high against the euro and a basket of major currencies on Thursday.
December arabica coffee on ICE was down 3.85 cents at $1.2525 per lb at 1415 GMT after touching $1.2480, the lowest level for the front month for more than nine months.
Prices for robusta coffee in London was also dragged down with November sliding to a low of $1,910 a tonne, off $54 and the lowest level for the contract since December 2007.
Fund selling linked to turmoil in financial markets has also contributed to the sharp decline in soft commodity markets with November robustas falling around 20 percent after trading as high as $2,395 in late August.
Lathiere of Diapason said he did not believe traders were looking closely at fundamentals of individual markets with many selling baskets of commodities.
He said prices may rebound later this week as interest rate cuts helped to stir renewed concern about inflation.
"There will be a new inflow into commodities. It is a bit early to say the money will come back tomorrow or the day after tomorrow but commodities will come back by the end of the year. We can reach really high levels in December," he said.
"Commodities are the best hedge against inflation."
Cocoa prices also tumbled with December futures on ICE off $61 at $2,450 a tonne and December futures in London down 25 pounds at 1,435 pounds a tonne.
The London contract has fallen steeply over the few weeks after trading as high as 1,672 pounds in late August.
PRODUCTION FALLING
Sugar price also eased with lower crude oil prices adding to downward pressure.
March raws on ICE fell 0.37 cent to 13.56 cents a lb while December whites in London eased $7.90 to $379.00.
Dealers said sugar fundamentals were improving but the market was unable to overcome widespread weakness in the commodity sector.
World sugar production is expected to fall to 160.9 million tonnes in 2008/09, from 169.6 million in the previous season, analyst F.O. Licht said on Thursday.
"The outlook for 2008/09 is for an improvement in sugar fundamentals. This notwithstanding, consumers must not fear any supply tightness as surplus stocks are still significant and will take time to work off," Licht said in a report.
Consultancy Kingsman on Thursday revised up its 2008/09 global sugar deficit forecast to almost 4.7 million tonnes from its previous forecast for a 3.8 million tonnes deficit.
In the physical market, Brazil has booked some 300,000-to-400,000 tonnes of raw sugar sales to India, expected to be delivered in the next two months, a senior executive with Brazilian producer Cosan said on Thursday.