Sao Paulo, April 1 - World sugar prices are likely to rise through 2010 due to upward pressure from investment funds, limited production in India and a weak dollar, Brazil's Archer Consulting said on Tuesday.
"Just by chance, we are where we were almost a year ago with sugar futures prices," said Archer's Arnaldo Luiz Correa. "But based on the fundamentals, it will be difficult for sugar to fall below 10 cents a pound."
"If we aren't at the bottom of the well, we're very close to bottom," he added.
Archer estimates that 2008/09 world sugar prices will range between 12.50 cents and 13.50 cents a pound, rising to between 13.50 cents and 15 cents in 2009/10.
The analysts have been advising clients to fix prices or hedge future buying requirements for the next 18 months.
Correa said that investment funds would likely return in force to the commodities markets that have fallen from their peaks in recent weeks. He also said India would likely be limited in its return as the world's marginal sugar exporter.
"The price of sugar below 12 cents, as it is now, is also a disincentive for world sugar producers, except for Brazil," Correa told analysts and reporters at an event in Sao Paulo.
Demand for ethanol from Brazil's flex fuel car fleet will also continue to support the world sugar price, he said.
He added that the recent surge that drove world sugar prices above 15 cents a pound in early March was largely due to a large influx of fund money in the commodity, whose fundamentals did not support such a price.
"I'm not as optimistic as some who have had the audacity to suggest that sugar would rise to 20 cents, 40 cents, even over 60 cents a pound. That is totally absurd and there is no fundamental reason to believe that," Correa said.
He also outlined some factors that could put downward pressure on the price of sugar: mills could produce more sugar than previously forecast; if sugar prices continue to fall, funds may unload positions; Russia could reduce imports faster than expected; increased trade imports in Brazil could put a floor on the dollar's fall against the real.
The last factor would make sugar production more attractive to local mills by offering greater remuneration for sugar exports in local currency terms. The dollar is still weak against the real <BRBY> but has gained in past weeks.
Correa said that the cost of production, which was around 10 cents a pound in Brazil for most of 2007, has risen of late.
"I need to run the numbers again but just guessing I'd say cost of production could be as high as 12.5 cents a pound FOB now," said Correa.