* Arabica coffee finds support just above contract low
* Cocoa underpinned by expected fall in Ivorian mid-crop (Updates prices; adds comment, second byline, NEW YORK dateline)
By Marcy Nicholson and Nigel Hunt
NEW YORK/LONDON, March 2 (Reuters) - Raw sugar futures extended gains to an eight-week high on Wednesday, with supplies tightened by drought-hit crops in Thailand and India, and the prospect of increased use of Brazilian cane by the ethanol sector, dealers said.
Arabica coffee futures turned higher on Wednesday after buying emerged just above contract lows for the second consecutive day while London cocoa retreated from a four-week high set earlier this week.
May raw sugar settled up 0.28 cent, or 2 percent, at 14.67 cents per lb, just below the session high at 14.69 cents, the highest since Jan. 5.
Dealers said an anticipated rise in Brazil sugar production this year could be curbed if mills opted to increase the amount of cane used to produce ethanol.
Brazil’s oils and fuels regulator ANP said on Wednesday there was the potential for larger use of hydrous ethanol this year.
Dealers said supplies had also been tightened by drought-eroded yields in both India and Thailand.
May white sugar settled up $6.80, or 1.7 percent, at $414.70 per tonne.
The firm Brazilian real against the U.S. dollar was also viewed as supportive to both raw sugar and coffee prices, as it deters producer selling, traders said.
Arabica coffee futures turned higher after testing support around contract lows earlier in the session.
“We are close to contract lows...but it has managed to hold around here before,” one London coffee dealer said.
May arabica coffee settled up 0.8 cent, or 0.7 percent, at $1.1555 per lb.
May robusta coffee settled up $14, or 1 percent, at $1,391 per tonne.
London cocoa eased, hovering below the nearly two-month high set earlier this week, with the prospect of poor mid-crops in both Ivory Coast and Ghana preventing deeper losses.
May London cocoa settled down 5 pounds, or 0.2 percent, at 2,184 pounds per tonne, pressured by the strong British pound.
Dealers said supply concerns driven by the expected poor quality of the tail-end of the West African main-crop and the upcoming mid-crop had tightened the market’s structure with both May/July and July/September spreads trading at backwardation, which can be a signal of potential nearby supply tightness.
May New York cocoa settled up $15, or 0.5 percent, at $2,948 per tonne. (Editing by Jane Merriman, Susan Thomas and Chizu Nomiyama)