By May Angel and Marcelo Teixeira

Prices for coffee and chocolate-making ingredient cocoa surged on Monday, with funds buying aggressively and some commodities traders covering their short positions as market participants re-priced risks linked to an expected super El Nino climate event.

Futures contracts for arabica coffee ICEUS:KC1!, the mild type preferred by high-end coffee chains such as Starbucks and Tim Hortons, jumped 16% on the ICE exchange to $3.49 per pound, having earlier hit their highest since January at $3.57.

It was the fourth-largest daily price gain on record for arabica coffee.

Prices for robusta coffee ICEEUR:RC2!, mostly used to make instant coffee and espresso beverages, rose 8.8% to $4,044 per metric ton.

"There is a lot of speculation on weather anomalies in the soft (commodities) space. Coffee, cocoa, sugar are all being watched by investors," said Tomas Araujo, a broker at StoneX in the United States.

Forecasters expect a very strong El Nino event to develop in the coming months, and its impact could be particularly strong on tropical commodities such as coffee and cocoa, as well as sugar.

Certain areas could become too hot and dry, such as Asia where most robusta is produced, or too wet, like top grower Brazil. Recent rainfall in the country has already disrupted this year's harvest.

A European coffee trader said some market players that held short positions in the futures were forced to liquidate them to avoid higher margin calls by the exchange.

Covering a short position boosts a rally, since an investor has to buy contracts to do so. Monday's trading volume in arabica coffee was the highest since mid-2024.

Meanwhile, cocoa prices in New York ICEUS:CC1! rose 13% on Monday to $5,694 a ton, while London cocoa contracts ICEEUR:C2! gained 12% to £4,222 per ton.

El Nino tends to cause excess rains in top cocoa growing region West Africa, as well as in Ecuador. The West Africa rains are then typically followed by excessively dry, hot Harmattan winds that harm the crop.

Sugar also gained, with investors worried about excessive moisture in Brazil that could slow down the harvest, and below-average monsoon rains in India that could cut the next sugarcane crop.

Raw sugar futures ICEUS:SB1! rose 2.5% to 15.22 cents per lb, while refined sugar ICEUS:SF1! gained 0.6% to $488.40 a ton.