The world should consume more sugar than it produces this season and the deficit may extend into 2005 and 2006, leading to higher prices, Dutch bank ABN Amro said on Tuesday.
"The market could see a small deficit very soon. We have seen droughts in Australia, with some mills ceasing operations and we think this could continue into the next year," Jean-Michel Boehm, head of the bank's Soft Commodities Business Development unit, said at a one-day ABN Amro conference in London.
Analysts generally have recently changed their 2003/04 surplus forecasts into deficits, mainly due to output losses among top producers.
Boehm said the sugar futures market had recently seen increased volatility and daily volumes, partly due to activity by the funds, which could represent between a third and half of current open interest in the market.
He said further liquidation by the funds could trigger pressure on prices in the short term, with a possible setback towards 5.70 cents per lb in the New York market.
"But the physical front should produce a recovery...and prices should hit eight cents or 8.50, although this is quite ambitious," he said.
CSCE May sugar closed on Monday at 6.08 cents per pound.