* Coffee council pegs Brazil 2014 output down 4.5 pct y/y
* ECA data shows European Q1 grind up 0.4 pct, disappoints
* London sugar spread widens to sharpest since December 2010 (Updates with closing coffee, sugar prices)
By Chris Prentice and Sarah McFarlane
NEW YORK/LONDON, April 10 (Reuters) - Arabica coffee hit a more than two-year high on Thursday, gaining for a sixth straight session, as low crop forecasts renewed fears that a drought will severely cut top-grower Brazil’s output in the coming seasons.
Cocoa futures sank after disappointing demand data, and London white sugar futures dropped in dealings ahead of next week’s May contract expiry.
Arabica coffee prices hit their highest level since February 2012, having soared some 20 percent over the last six sessions, as deteriorating prospects for Brazil’s production caused speculators to add to bullish bets.
Benchmark ICE May arabica coffee ended the day up 6.25 cents, or 3.1 percent, at $2.061 cents per lb after peaking at $2.0780 as reduced crop outlooks for Brazil stoked buying.
Coffee output in Brazil is expected to fall 4.5 percent to 47 million 60-kilogram bags of beans this season from a year ago, the country’s coffee industry association Abic said.
“People are waking up to the fact that this isn’t a one-year issue, it’s at least a two-year issue,” a European analyst said, who noted the 2015/16 crop year could be a “bigger disaster” than 2014/15.
“The drought is potentially undermining the whole structure of production of the coming years because the trees are so severely weakened.”
Fears over crop damage after a record hot January and February began to renew last week due to forecasts of dry weather and a low outlook on Friday from the Coffee Crops Council that pegged output in 2014 as low as 40.1 million bags.
A small town in Brazil’s key coffee-growing state declared a state of emergency due to drought.
July robusta coffee futures on Liffe rose $25, or 1.2 percent, to settle at $2,158 per tonne.
The London market has tracked but not matched ICE coffee’s gains so far this year. The spread between the two KC-LRC1=R climbed as high $1.0928 a lb during Thursday’s trade, the widest such premium arabica has held above robusta since March 2012.
Cocoa prices weakened after European cocoa grindings rose 0.4 percent from the same period last year, below traders’ expectations for a rise of around 3 percent.
May cocoa futures on ICE dropped the most in three weeks, closing down $41, or 1.4 percent, at $2,970 a tonne.
“We were already have trouble holding the $3,000 level and now with this weak European grind data, we’re seeing fund liquidation pressure,” said Sterling Smith, a futures specialist with Citigroup in Chicago.
Liffe July cocoa futures finished down 18 pounds, almost 1 percent, at 1,869 pounds.
Justin Grandison, director of cocoa brokerage at ABN Amro Clearing Bank NV said that the grind data “highlights that a lot of grindings go on now in origin” and that grinding capacity had expanded in West Africa, the world’s largest producing region.
In sugar, the front-month May white sugar futures on Liffe sank $5.80, or 1.3 percent, to finish at $448.90 a tonne.
Dealers said they expected some Guatemalan white sugar, and possibly a parcel of Mexican supplies, potentially totalling 100,000-150,000 tonnes, to feature in the delivery at expiry of the Liffe May contract on April 15.
A widening spread suggested buyers were scarce. The discount of the front-month to the second-month LSU-1=R sank as low as $21.80 a lb during the day’s trade, the biggest such discount since December 2010.
Front-month raw sugar futures on ICE edged up 0.04 cent, or 0.2 percent, to close at 17.08 cents a lb.
It was the seventh straight session of tight, range-bound trade as worries over lower output in top grower Brazil were offset by weak demand due to high inventories.
The market was underpinned by concerns about the potential for an El Nino weather event to curb production after unfavorable weather so far this year in Brazil, the world’s biggest producer and exporter. (Additional reporting by David Brough in London; Editing by Grant McCool and Alden Bentley)