Sugar's teetering rally could face its "Waterloo moment" if prices, which have already slumped by more than a quarter in the last month, slip a further 6%, Sucden Financial analyst Thomas Kujawa has warned.

Mr Kujawa flagged a New York price of 21 cents a pound as key battleground for the bearish investors, who were encouraged on Wednesday by news of firm Brazilian and Indian production, and the bulls who pushed the market in February to its highest in 29 years.

Falling through this level, requiring a further decline of less than 1.5 cents, would open sugar prices to an "abyss", with a bottom at perhaps 13 cents a pound .

'State of emergency of relentless panic'

His analysis is based on scrutiny of chart patterns, which could form a so-called "head and shoulders" – seen as a selling signal – if prices fall below 21 cents a pound, a level which provided strong technical support for much of the last half of 2009.

"We have to be mindful that the support around 21c is likely to be the key going forward and will be the Waterloo moment should we test the bulls' and the bears' nerves," Mr Kujawa said.

However, he noted that a "state of emergency of relentless panic" in markets on Tuesday, when prices touched their lowest for nearly two months, might signal a fall in volatility.

"The old saying goes that it is panic that calls the tops and bottoms and then perhaps that might be it for the short-to-medium term," he said.

Production hopes 

The comments came as sugar mills in India, the world's second biggest producer of the sweetener and biggest consumer, reported a 5.5% rise in production in the first five months of 2009-10, forecasting output will end up above 16m tonnes.

Some analysts earlier in the season, after a weak monsoon, forecast output at 15m tonnes, but late rainfall boosted sugar cane yields, the Indian Sugar Mills Association said.

Separately, Brazil's sugar industry forecast cane production increasing by 10% in 2010-11, with sugar levels rising to 140 kilogrammes per tonne of cane, from 130 kilogrammes last season.

Commerzbank analysts said: "Even though more than half of the additionally-yielded sugar will be used for ethanol production, there are more and more signs that the current physical shortage on the sugar market will significantly diminish this year."

Nonetheless, the brighter outlook for sugar output had been "largely been priced in", the German bank said, forecasting that prices should "stabilise".

Raw sugar stood 0.8% lower at 22.47 cents a pound in New York at 12:00 GMT, with London white sugar for May up 1.6% at $628.50 a tonne.