Dryness in Brazil represents a key threat to an outlook of sugar prices remaining around current levels for the rest of 2014, with rainfall needed over the next month to support prospects for increased production.
Australia & New Zealand Bank forecast that New York sugar futures, which closed the last session at 15.22 cents a pound, would trade this year between 14.5-18 cents a pound.
"Given the extent in the rebuilding of sugar stocks in the past three years, price volatility is likely to remain low," Paul Deane, senior ag economist at ANZ, said.
"We forecast sugar prices to largely stabilise in 2014, after a 40% decline in average prices over the past two years."
'Hold the key'
Brazil, the top sugar producing and exporting country, "will hold the key" to prices moving outside this range, flagging the potential for a weaker real for depressing world values, but with a disappointing cane harvest "needed for any upside surprise in price".
Although Brazil's key Centre South region, responsible for some 90% of domestic production, appeared poised for a 15m-tonne rise to 610m tonnes in cane output, that would require correction of a moisture shortfall which had totalled 150mm in the past three months.
"Unless Brazil's key cane growing region, in and around the state of Sao Paulo, receives good rainfall, this [production] outlook could quickly look optimistic," Mr Deane said.
Core cane growing areas of Sao Paulo state had received some 70% of normal rainfall last month, with a further shortfall so far in 2014.
"The near-term rainfall outlook in the region is only likely to add to creeping concerns regarding the yield outlook for the 2014 cane harvest," Mr Deane said.
"Cumulative rainfall deficits are forecast to reach another 250mm over the next fortnight."
Multi-year price lows
The comments come as New York raw sugar futures are trading near their lowest since 2010.
The fall in prices has presented large gains to hedge funds, which have for two months been increasing short positions in raw sugar futures and options.
London white sugar for March in the last session hit $409.10 a tonne, the lowest for a spot contract for nearly five years, before recovering 0.2% on Monday to finish at $413.30 a tonne.
Prices are also being undermined by decent hopes for shipments from Thailand, the second-ranked sugar exporting country, although there are some doubts that Indian subsidy reforms will actually boost export hopes much.
Sucden Financial highlighted "doubts over whether the potential Indian raw sugar export subsidy will firstly come in time to affect the current crop, and secondly whether it will be enough to bridge the gap between the domestic market and the world market".
Marex Spectron said while the recent sugar price declines "were 'justified' by the expectation that the Indian government would subsidise exports, and thus increase the surplus even at current prices", it now seems that the country "will grant a subsidy, but not enough to make exports economic prices".
Sugar prices should return to about 17.00-17.50 cents a pound, the London-based broker said.