A combination of strong harvests in South America and increased activity from speculators is set to keep coffee and sugar prices on a downward trajectory during the first half of 2013 - but prices could rise again after that, analysts are predicting.

Prices for both commodities hit two-and-a-half-year lows in early February, driven down to a large extent by substantial global surpluses, and because Brazil is expected to produce large coffee and sugar crops this season.

High prices in 2010/11 had encouraged coffee and sugar producers around the world to up production this season, commodities experts at Macquarie said in a recent report. Key producer Brazil was also experiencing favourable weather, it added.

Demand from Europe has been weaker, as many Eurozone countries struggle with debt. According to Brazilian analysts Safras & Mercado, Brazil had sold just 67% of its coffee crop at the beginning of February compared with 79% in February 2012, while Rabobank said sales from the country’s sugar suppliers had also dropped.

As well as a downward trend on sugar and Arabica coffee, it’s a similar story for cocoa.

Cocoa powder prices are continuing to fall to more normal levels after the exceptional heights seen in mid-2011. At £2,098/tonne, UK powder prices are down 30% year-on-year, having fallen a further 2.7% in the past month.

How long cocoa prices will stay low remains to be seen - the recent lows have raised concerns that growers in key producing countries such as Ivory Coast might switch to other crops, putting a squeeze on global supplies.

At the opposite end of our tracker, Sri Lankan tea has risen to the top of our list of climbers, up 10.6% month-on-month and 3.5% year-on-year.

With global supplies looking ample and demand weaker than normal, speculators were now increasing their short positions on both commodities, betting on falling prices that - in turn - contributed to prices dropping further, Macquarie said. “Total open interest in raw sugar futures rose to a three-year high on 11 February to 852,000 tonnes,” the bank added. “A lot of this volume is driven by speculative shorts, who have increased their positions sharply.” Speculator activity was also high in coffee, it said, reaching highs not seen since August 2010.

However, the downward trend in sugar prices could reverse later in the year if large numbers of Brazilian millers were put off by low prices and opted to make more ethanol instead, Rabobank warned. “Unlike in other producing countries where all cane is made into sugar, in Brazil the vast majority of mills produce both sugar and ethanol,” said analyst Andy Duff. “This means millers here can vary the output of sugar versus ethanol in response to price expectations.”