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Supply jeopardy sustains sugar rally

Exceptionally dry weather in Brazil, the world’s biggest exporter of sugar, has helped push the price of sugar higher.

New York raw sugar futures are on course for a fourth day of gains in a row, supported by worries over the supply from Brazil and India. By mid-afternoon in New York, sugar futures for March were up 2% at 1604 cents a pound, after earlier hitting the highest in a month.

Brazil is the largest exporter of sugar in the world, but a lack of rain in Brazil amidst exceptionally hot conditions has parched the crop of sugarcane. Temperatures in January were the hottest on record last month, while the country saw the lowest rainfall during the month in 20 years.

The rally in sugar follows a period of easing in prices, with a double-digit percentage decline in 2013 on the back of the USDA’s forecasts of a global sugar surplus for this year, with some speculating that the sugar glut would be further exacerbated by a flood of sugar from India, the world’s second-largest producer.

This notion has had a setback today though by the Indian cabinet opting to defer once again on a decision to grant cash subsidies intended to encourage sugar exports. India’s Cabinet Committee on Economic Affairs (CCEA) was expected to reach a decision on the incentives by Thursday, but instead has put back the verdict for a second time.  Indian sugar mills have been lobbying for the aid to enable them to compete in the global market for raw sugar. The deferral may see mills instead opting to produce white sugar instead, which commands a premium over the raw commodity.

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