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By Rachel Graham

Aug. 18 (Bloomberg) -- Global sugar production will drop to its lowest since 2005-06, led by a drop in Indian output, and leave a supply shortfall that will support prices in 2009, Czarnikow Group Ltd. said.

Production will drop to 164.1 million metric tons in the 2008-09 crop cycle, the lowest since 2005-06, London-based Toby Cohen and other Czarnikow analysts wrote in a report today. Demand will exceed supply by about 3.3 million tons, compared with a surplus of more than 11 million tons in 2007-08.

``The downward trend in production is clear,'' Czarnikow said. ``The balance of risk in the market is changing, which will bring fundamental support to sugar prices in 2009.''

Raw and white, or refined, sugar prices have declined for two consecutive years as supply outpaced demand. The London-based International Sugar Organization is forecasting a production surplus of 7.8 million tons in the year to Sept. 30, equal to about 5 percent of global output.

World demand for sugar should rise to 166.4 million tons in 2009, compared with 161.6 million tons this year, Czarnikow estimates.

Indian cane production in 2008-09 is forecast to drop to 23.9 million tons, from 28.9 million tons. The decline is ``predominantly due to lower acreage as farmers have begun to switch away from cane towards crops such as wheat, paddy and pulses,'' Czarnikow said.

Cane output in Brazil, the biggest producer, will be unchanged at 33.5 million tons.

To contact the reporter on this story: Rachel Graham in London rgraham13@bloomberg.net.