Sugar Heads for Biggest Weekly Gain Since January on Price View

By M. Shankar

March 13 (Bloomberg) -- White sugar headed for its biggest weekly gain since January in London on expectations that the first global supply deficit in three years will push prices higher. Cocoa and robusta coffee climbed.

Lower production will leave a “significant gap” with consumption after two years of surplus, the International Sugar Organization said March 12. Output in India, the second-largest producer of the sweetener and the biggest consumer, may drop 37 percent to 16.5 million metric tons in the year to September, Farm Minister Sharad Pawar said last month.

“The outlook for sugar is strongest from the second half,” said Kona Haque, a commodities strategist at Macquarie Bank Ltd. in London. “I wouldn’t expect people to go short.”

White sugar for May delivery, the most actively traded contract, slipped 70 cents, or 0.2 percent, to $402.30 a ton on the Liffe exchange at 1:09 p.m. local time. A close at that price would equate to a 5 percent weekly gain, the biggest since the week ended Jan. 2.

The sweetener has added 27 percent this year as the UBS CMCI Bloomberg Index of 26 raw materials has lost 3.4 percent. Raw sugar traded on ICE Futures U.S. rose 0.5 percent to 13.15 cents a pound in New York.

Sugar’s rally may slow if production rebounds in India as higher prices induce farmers to plant more cane. Raw sugar has climbed 12 percent this year in New York.

“Farmers are back to planting sugar cane again, thanks to the good prices they are getting this year,” S.L. Jain, director general of the Indian Sugar Mills Association, said in a phone interview from New Delhi. “Increased production will still not be sufficient to meet the rising demand.”

Among other agricultural commodities traded on Liffe, cocoa for May delivery climbed 11 pounds, or 0.6 percent, to 1,889 pounds ($2,638) a ton. The beans have gained 4.5 percent this week and 6.1 percent in 2009.

Robusta coffee for May rose $26, or 1.7 percent, to $1,556 a ton. The contract has added 3.7 percent this week.

To contact the reporter on this story: M. Shankar in London at mshankar@bloomberg.net