Sugar prices look set to lose more of their premium over prices of corn-based sweeteners, Czarnikow said, signalling limited room for grain processors such as Cargill to lift prices in imminent talks.

Makers of high fructose corn syrup, a group which also includes the likes of Archer Daniels Midland and Tate & Lyle, last year achieved strong rises in prices, of some 10-15%, in annual talks with customers, such as drinks giants PepsiCo and Coca-Cola.

However, as the companies prepare for this year's round of talks, for 2013 prices, set to begin later this month, Czarnikow flagged the falling price of sugar compared with high fructose corn syrup (HFCS), whose manufacturing costs are being underpinned by elevated corn prices.

In contrast, sugar prices have been undermined by a recovery in cane production in the likes of Australia, Brazil and China, besides sugar beet in Russia, leaving the world with a production surplus of 7.1m tonnes in 2012-13, on Czarnikow estimates.

'Prices may converge' 

"Since 2008 high sugar and low corn prices have driven industrial consumers towards corn sweeteners," the merchant said, flagging a rise from historic levels of 3.2 cents a pound in 2007 to 15 cents a pound last year in the premium of sugar-based sweeteners over corn-based ones.

"It has since fallen to around 7.6 cents a pound currently."

And it stands to fall further, including in the Mexican market which is key to US HFCS producers, which have used exports south to offset the impact of a slowdown in domestic use of corn sweeteners as health-conscious consumers switch from fizzy drinks to fruit juices and water.

"In Mexico, the imminent start of the harvest, which is expected to yield the biggest crop in the last four years, could see prices converge," Czarnikow said.

US Department of Agriculture staff this month estimated a bigger and better quality Mexican cane harvest fostering a 4.1% rise to 5.25m tonnes in Mexico's sugar output in 2012-13.

Chinese dynamics 

In China too, where corn-based products account for one-third of sweetener demand, as measured by calorific value, sugar may regain market share if its values fall as market dynamics suggest.

"With a bigger cane and beet crop anticipated in 2012-13, sugar prices should fall," Czarnikow said.

"If sugar prices fall there is the potential for a rise in sugar demand at the expense of corn sweeteners," with improved domestic production also set to foster a halving to 1.5m tonnes in China's sugar imports.