The prospect of a poor finish to Brazil's sugar season could drive prices of the sweetener higher still, even after they hit a 30-year high on Tuesday, Societe Generale has said.

It was "hard to see" what, for now, could alter a picture of depleted sugar stocks, with consumption firm and supplies sapped by "disappointing" output from Brazil, the top exporter, Societe Generale analyst Emmanual Jayet said.

Brazil produced 30% less of the sweetener in the first half of October than a year before, data from cane industry group Unica said.

The squeeze meant that sugar prices could hit 32 cents a pound, Mr Jayet said, upgrading price forecasts.

The comments came as New York's March raw sugar contract reached 30.64 cents a pound, the highest for a near-term contract since January 1981.

India factor

The main obstacle to further price gains was India, the one major producer set for a decent 2010-11, and which has the potential to beef up export supplies, if government approves shipments.

Societe Generale's revised sugar price forecasts

Q4 2011: raw sugar, 22.0 cents a pound; white sugar, $600 a tonne

Q3 2011: raw sugar, 22.5 cents a pound; white sugar, $616 a tonne

Q2 2011: raw sugar, 25.9 cents a pound; white sugar, $686 a tonne

Q1 2011: raw sugar, 27.0 cents a pound; white sugar, $705 a tonne

Q4 2010: raw sugar, 29.2 cents a pound; white sugar, $744 a tonne
Even then, exports of 4m tonnes, far more than currently envisioned, would be needed to send prices back below 25 cents a pound.

"This means that there is hardly any potential news in sight which could stop the ongoing sugar rally," until any potential uptick in Indian exports early next year.

Surplus evaporates

Uncertainties over Indian exports, and cane price rises which threaten the viability of mills in the major producing state of Uttar Pradesh, were also cited by Sudakshina Unnikrishnan at Barclays Capital as a reason behind the price rally.

And with a string of setbacks in most producing countries, "expectations of a surplus in the world sugar market have been downgraded quite a bit", she said.

"The world market is in equilibrium, rather than producing the surplus that was expected a few months ago."

Last on Monday, US Department of Agriculture staff in Manila warned in a report that sugar output in the Philippines, a middle-ranking producer, would fall for a second successive year in 2010-11, despite expanded cane plantings, as rainy weather lowered sugar content in the crop.

Dollar effect

At Sucden Financial, Thomas Kujawa added that external markets were "generally quite bullish" for commodities, with many investors seeking protection from a falling dollar.

With this week witnessing US Mid-Term elections, a US interest rate decision and key employment numbers, "there is the potential for the dollar to weaken very quickly", he told Agrimoney.com.

A weak dollar is generally positive for assets, such as sugar, denominated in it, making them cheaper to buyers in other currencies.

Raw sugar for March closed up 2.3% at 30.12 cents a pound in New York, itself the first close above 30 cents a pound for a near-term contract since January 1991.

In London, white sugar for December ended up 1.6% at $745.50 a tonne, within an ace of a record. London's futures exchange began trading white sugar in 1983.
 

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