London/New York, Aug 12 - Sugar prices are poised to hit 30-year highs on a perfect storm of huge Indian imports and tight supplies, and the rally may not be enough to stimulate larger output as a credit crunch grips top producer Brazil.
The benchmark spot sugar contract in New York scaled a 28-year peak this week of 22.44 cents a lb and refined sugar futures in London charged to a record high as weak monsoon rains in leading consumer India stoked talk of hefty imports in 2009/10.
In Brazil, weather delays in the harvest have produced a squeeze in supplies.
Some analysts feel that global sugar stocks are lower than previously thought, raising the prospect of an even tighter supply picture in the year ahead.
"You're having a year we haven't see since the 1980s," Alex Oliveira, senior sugar analyst for Newedge USA in New York, told Reuters. "We can go (to) 25, 27 cents."
The chief executive and president of the biggest U.S. sugar refiner, John Sheptor, said current prices on the spot contract in New York at around 22 U.S. cents per lb will likely climb even further given the supply squeeze in India and Brazil.
"The price could be much higher than it is today," he said.
Since the start of 2009 raw sugar values have soared over 80 percent as India's 2008/09 cane crop withered in a dry spell, while weak monsoon rains believed linked to the start of an El Nino weather phenomenon threaten the 2009/10 crop.
Toby Cohen, head of research at London-based sugar merchant Czarnikow, said he saw scope for plenty of upside in sugar prices due to tight global supplies and robust demand.
"We believe that prices can move much higher," Cohen said.
Raw sugar futures hit a record high of 65 cents a lb in November 1974, he said.
SUGAR SCRAMBLE
Praful Vithalani, who owns domestic brokerage Jagjivan Keshavaji and Co in India, said buyers had developed a siege mentality in recent months.
"People started buying sugar as if the commodity is going to vanish altogether. But the situation is not that bad. When we talk about global prices, there is a lot of speculation which may lead to a level of 25 cents per lb but that is not sustainable," Vithalani said.
However, some feel the market is primed to row back temporarily from its stratospheric levels.
Jonathan Kingsman, head of Lausanne-based consultancy Kingsman, told Reuters raw sugar prices are set to retrace to around 20 cents which would then trigger flows of Brazilian raw sugar to India.
There is also the backdrop of robust demand, with the United States likely looking to import over 800,000 tonnes in the spring to meet a domestic shortfall.
"My guess is that sugar will eventually go above 25 cents a lb, but it won't happen in a straight line and you will have intense volatility," Kingsman said.
In other years, a spike in sugar prices would normally spur producers to plant more cane and raise production.
The last time this happened was in 2006 when sugar traded at a 25-year top of 19.73 cents before tailing off.
The International Sugar Organization (ISO) said sugar production in top grower and exporter Brazil may not be able to respond to higher sugar values because of a credit crunch which would get in the way of higher sowings.
"Higher world prices might trigger a supply response but in the coming 18 months, however, no strong expansion potential can be envisaged taking into account the current credit crunch," ISO chief Peter Baron said at the annual meeting of the American Sugar Alliance.
Even if production in India recovers to hit its record output level of 30 million tonnes, "world sugar production and consumption would (just) be nearly balanced," Baron said.
The volume of cane that can be committed to sugar production will not likely get a boost as mills in Brazil's main centre-south region are already at or near capacity.
"Mills are already using all the capacity they have to produce sugar," said Luis Carlos Correa Carvalho, director at Canaplan consultancy and vice-president at Brazil's Agribusiness Association, Abag.
While Brazil's cane sector has been in rapid expansion over the past few years with dozens of new mills opening annually, many of the new facilities only have the ability to produce ethanol unlike the bulk of the country's older milling operations that split their cane crush between sugar and ethanol production.