NEW YORK: Speculators are on the way to increasing their already large long position in raw sugar futures on ICE exchange, spurred by post-frost downgrades to Brazilian production, a move that could take prices to as high as 21 cents per pound.

According to a report by European sugar consultancy CovrigAnalytics released on Friday, sugar market players continue to revise down their estimates for output in Brazil, the world’s largest exporter with 40% of the market, believing the harsh drought and frosts will hurt cane agricultural yields.

“Short term the bulls have gained momentum sustained by the frost episodes in Brazil and by continuous cuts in sugarcane production estimates,” the analyst said.

“They will probably manage shortly to break above the 19 cents/lb threshold and move higher even up to 20.5-21 cents/lb,” it added, saying production numbers from Brazil’s industry group Unica for second half of July and August could add fuel to the fire if they show a “huge” drop in agricultural yields.

Sugar prices hit 18.92 cents/lb on Friday, the highest since February when they were at a four-year peak.

CovrigAnalytics said that if Brazil sugar production drops to a worst case scenario around 30.8 million tonnes it would drive the global sugar supply balance to a deficit of up to 4.6 million tonnes in 2021/22.

The consultancy believes prices could see some downward correction in the medium term, however, when new production from India and Thailand starts to hit the market in 2022.