Biggest sugar rally in years not over as deficit looms: poll

Analysts, traders say prices are on course to reach one-year highs by next March

Sugar's biggest rally in four years may be far from over, according to a survey of a dozen analysts and traders, who say prices are on course to reach one-year highs by March as the market braces for its first supply deficit in six years.

Sugar has been one of the worst-performing commodities in recent years. Falling output in the world's top growers, Brazil, India, China and Thailand and resurgent ethanol demand will help the sweetener market escape an unprecedented five-year surplus and stock build that have pummeled prices, respondents said.

The price forecasts were in a wide 5-cent range, reflecting near-term caution amid concerns India, the world's top producer, will flood the market with unwanted inventories if prices breach 15-16 cents per lb.

The sugar market has reached a "turning point" after surging more than 40% from seven-year lows late last month, analysts at BTG Pactual bank said in a research note this week.

Reflecting the marked change in outlook, one US trader said India's sales may be needed if supplies continue to tighten.

Sugar prices hit seven-month highs of 14.05 cents per lb on Thursday, as investors have bet on dwindling supplies after Brazil announced a gasoline price hike and worries emerged about India's drier-than-expected monsoon.

Almost half of respondents surveyed on Wednesday and Thursday said they expect prices to end the year above 14.50 cents per lb. This would be the first annual rise after four straight years of declines.

One even had 18.5 cents per lb in sight, which would be the highest since July 2014.

Prospects for the first quarter are brighter, with a median of traders and analysts predicting prices will rise another 9% to 14.95 cents per lb by the end of March.

Respondents were unanimous in their expectations for a supply deficit, with a median pegged at 3.9 million tonnes.

The survey marks a remarkable shift from a Reuters survey in late July that pegged prices at 13 cents by the end of 2015.

Still price forecasts for the upcoming two quarters were in a wide 5-cent range between 13 and 18 cents, reflecting near-term caution.

Prices may be prone for bouts of speculative pressure after recent data showed hedge funds built up their biggest bullish bets in more than a year.