Hedge funds are pouring more money into raw and refined sugar markets on the promise of better returns than alternative investments, ABN Amro said on Monday.
"Hedge funds are the new kings of the sugar market and are set to influence prices in the medium term," the bank said.
Room remained for investment, and an increasing number of hedge funds were entering sugar positions in the futures markets each week, Jean-Michel Boehm, head of soft commodities at ABN Amro, said in a statement.
"The outlook for prices is positive, which is evident from the long positions being taken," Boehm said.
"There is still huge potential for investment from hedge funds in raw and refined sugar."
Refined sugar futures, which have risen by almost a third on London's Liffe market this year, were at $239.5 a tonne on Monday, down $0.2 since Friday's close.
Boehm said: "We will see raw sugar prices hit double-digits in the long term."
Front-month raw sugar futures settled on New York's NYBOT market at 8.90 cents a lb on Friday.
Simon McGuigan, sugar department manager at ABN Amro, told Reuters: "I don't see any reason why the market can't go to 11 or 12 cents long term."
McGuigan said funds were increasingly interested in sugar markets as alternative investments such as stocks and bonds offered the prospect of weaker returns.
Also, the fundamental outlook for sugar remained bullish, he said, referring to expectations of tightening global supplies into next year and increased demand by India, the world's biggest sugar consumer, after a poor crop.
Hedge funds had recently accounted for almost 50 percent of the open interest in sugar futures and were taking increasingly long positions, ABN Amro said.