Arabica coffee futures on ICE sank to a 2 -1/2-year low on Monday, on fund selling and pressure from the spot contract's huge discount to the second position. Cocoa futures also dropped, giving back the previous session's gains while sugar turned lower following Brazilian data that showed a steep increase in output.  March arabica coffee futures pared losses, falling 0.95 cent, or 0.6 percent at $1.4985 cents per lb by 12:45 pm EST (1745 GMT), after sinking to $1.4760, the lowest level for the second month since June 2010. "The funds have been selling systematically," said one New York dealer, who added that the funds are holding a large net short position.  In recent weeks, speculators have built up the largest net short position in arabica futures and options since the US Commodity Futures Trading Commission (CFTC) first made the data available in early 2007.  Updated CFTC data is expected to be issued at 3:30 pm EST on Monday. "Weakening supply/demand fundamentals in most of the soft commodities have been putting pressure on NY traded futures, whilst encouraging greater short positions," Macquarie said in a report on Monday. The discount of the December arabica contract to the March contract widened to around 8.70 cents per lb last week, the spot contract's biggest since May 1994, as dealers didn't want to be caught holding old coffee that will face increased penalties. The discount had since narrowed slightly to around 8.60 cents per lb.  Plentiful supplies continued to grab traders' attention, although top grower Brazil faces a smaller crop next year and a Colombian industry association lowered its own production forecast.  Brazil has a biennial crop cycle, which causes output to rise then fall from one year to the next with variations of 15 percent to 20 percent. Next year will be an off-year for the world's top coffee grower. "We think the level seems to be too low," said Commerzbank analyst Michaela Kuhl. "There's a huge crop in Brazil. However, markets seem to ignore the upcoming year."  She said that next year arabica could be scarce again, leading to higher prices. Kuhl said she expected prices to rebound next year to around $1.70 to $1.80 per lb. Colombia's coffee growers federation on Saturday lowered its production target for 2012 again to around 8 million 60-kg bags due to poor weather. Robusta coffee futures on Liffe sank to the lowest level in more than nine months with the harvest in top robusta producer Vietnam in full flow.  January robusta coffee futures eased $5, or 0.3 percent, to settle at $1,854 a tonne after dipping to $1,836, the lowest level for the second month since February 6. Cocoa futures dropped, with dealers noting an improvement in the quality of cocoa arriving at Ivorian ports for export. "Ivory Coast has the mid-crop to sell. The weather has been perfect there," the New York dealer said.  ICE March cocoa closed down $38, or 1.5 percent, to settle at $2,478 per tonne while Liffe March cocoa futures ended 31 pounds lower, or 0.8 percent, at 1,584 pounds per tonne. Raw sugar futures on ICE turned down a shade with the market still hovering above a two-year low set earlier this month. Brazil's center-south region, the world's largest producer of sugar, churned out 1.74 million tonnes in the first two weeks of November, up 37 percent from the same fortnight last year, when drought had caused the first drop in output in a decade, industry association Unica said. March raw sugar futures on ICE crept down 0.04 cent, or 0.2 percent, to 19.10 cents a lb. March white sugar on Liffe also turned lower, falling by $1.40, or 0.3 percent, to $509.20 per tonne.  Source: brecorder.com/agriculture-a-allied/183/1261832