Sugar Gains Most in Five Months in London on Crop Speculation

By Claudia Carpenter

July 30 (Bloomberg) -- Sugar climbed the most in five months in London on speculation dry weather has damaged the crop in India on top of reduced supplies from Brazil. Coffee and cocoa were little changed.

Domestic sugar prices in India climbed 2.7 percent today, extending gains since mid-June after below-average rains in cane- growing areas in the western province of Maharashtra. Sugar production in Brazil, the world's largest grower, has dropped this year as mills used more cane to produce ethanol.

``We expect prices to gradually move higher over the next few months because of the tightening sugar balance sheet,'' said Jonathan Kingsman, chief executive officer of Lausanne, Switzerland-based sugar broker and researcher Kingsman SA. ``Ethanol pays much more than sugar.''

White, or refined, sugar for October delivery climbed $13.80, or 3.8 percent, to $375 a metric ton as of 1:11 p.m. in London on the Liffe exchange, the biggest gain since Feb. 8. Raw sugar futures in New York gained 2.7 percent after climbing 4.1 percent yesterday.

Rainfall this week in India ``could be beneficial for crops,'' Sharad Pawar, India's farm minister, told reporters in New Delhi today. Rains in Maharashtra were more than 30 percent below average in the first three weeks of the month, the weather bureau said.

The chances of crop damage are ``supportive'' for sugar, said Nick Hungate, a trader at Rabobank International in London. ``Whether the uncertainty will translate into a much lower crop number remains to be seen.''

Brazil, Ethanol

Sugar output in central Brazil, the world's biggest grower, fell to 8.47 million tons this year through July 16 from 9.5 million tons at this time last year, Brazil sugar cane industry group Unica said yesterday. Ethanol output rose to 7.94 billion liters from 7.26 billion liters.

Ethanol pays about 16 to 17 cents a pound, compared with about 13 cents a pound for raw sugar, Kingsman said.

Robusta coffee for September delivery rose $9 to $2,419 a ton. Cooler weather early next week is forecast for the coffee belt in Brazil, the world's largest grower, U.S. forecaster Meteorlogix LLC said yesterday in a ``long range guidance'' report. No damaging cold is expected, the report said.

Agriculture prices led by sugar, corn and cocoa led gains in the UBS Bloomberg CMCI index of 26 commodities yesterday. Investors in indexes that track commodities withdrew a record $1.76 billion from agricultural futures last week, the fifth consecutive week of outflows, according to UBS AG.

``Maybe it was overdone on the downside,'' Kingsman said.

Cocoa for September delivery fell 2 pounds to 1,500 pounds ($2,973) a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net