Sugar Rallies to Three-Year High in New York on India Drought

Aug. 4 (Bloomberg) -- Sugar rose to a three-year high in New York and jumped to the highest price since at least 1989 in London as a drought threatened to reduce crop yields in India and prolong a global production deficit.
Maharashtra, Indiâ?Ts largest sugar-growing state, may produce as little as 4.6 million metric tons in the year starting Oct. 1, compared with 5 million forecast on June 29, said Ajit Chowgule, secretary of the Maharashtra State Cooperative Sugar Factories Federation Ltd. Prices are up 64 percent this year on prospects that India, the world?Ts largest sugar consumer, will become a net importer for a second year.

?oThey just haven?Tt been getting the right amount of rains in India,? said Anthony Compagnino, a partner at East Coast Options Services Inc. in New York. ?oYesterday was a major commodity rally on the weakness of the dollar, but sugar is back to its own fundamentally sound story at the moment.?

Raw-sugar futures for October delivery rose 0.26 cent, or 1.4 percent, to 19.4 cents a pound at 1:07 p.m. on ICE Futures U.S. in New York. Earlier, the commodity reached 19.46 cents, the highest for a most-active contract since Feb. 6, 2006.

White, or refined, sugar for October delivery climbed $9.30, or 1.8 percent, to $512.20 a ton on the Liffe exchange in London. The price touched $513, the highest since at least January 1989, based on data available on the Bloomberg. The price has rallied 61 percent this year.

Production in Maharashtra is likely to fall this year from 9.1 million tons a year earlier, Chowgule said in a telephone interview from Mumbai.

Monsoon Rainfall

?oThere was a near drought-like situation in parts of the state in June and July, and that damaged the crop,? he said. ?oEven if rains are normal in August and September, the damage can?Tt be undone.?

Below-average monsoon rains in July last year reduced yields from Indian cane fields. Total sugar production fell by half, and the country became a net buyer for the first time since the 2005-2006 season. Production is expected to drop 44 percent to 14.7 million tons in the year ending Sept. 30, the Indian Sugar Mills Association has said.
Raw sugar imports in the year starting Oct. 1 may reach at least 4 million tons, doubling the total for this year, Kushagra Nayan Bajaj, joint managing director of Bajaj Hindusthan Ltd., Indiâ?Ts biggest mill, said in an interview last week. Production may be little changed at 15 million to 16 million tons, Bajaj said.

To contact the reporter on this story: Boris Korby in Chicago at bkorby@bloomberg.net.

Last Updated: August 4, 2009 13:08 EDT