The rapid growth in sugar production in Brazil may come to a sharp halt next season, Rabobank has said, flagging the potential for weather setbacks to trigger a "significant rebound" in prices.

Cane output in the world's top-ranked producer is set to jump 10% to about 596m tonnes in 2010-11, industry group Unica has said, with consultancy Datagro pegging the figure even higher, at 604m tonnes.

Indeed, sugar output in Brazil's main sugar producing region, the Centre South, soared by 39% to 4.4m tonnes in the first six weeks of the market year, Unica said on Tuesday.

However, production may not grow at all in the 2011-12 season, which starts next April, as a hangover from a slump in investment feeds through, Rabobank said.

Many sugar operators took on heavy loans to fund investment in the middle of the last decade, leaving them heavily exposed when the credit crunch hit.

'Steadily fading'

"The wave of expansion the sector experienced in recent years is steadily fading," Rabobank analyst Andy Duff said, noting that five new mills may open in 2011-12, compared with 30 three years before.

"Moreover, several years of replanting at sub-optimal rates has resulted in progressive ageing of the cane crop, generating expectations of an associated decline in yields.

"There are doubts whether there will be any growth at all in cane production in the Centre South in 2011-12."

The Centre South is responsible for the great majority of sugar production in Brazil, which accounts for one-quarter of world output of the sweetener.

Perfect weather?

Mr Duff flagged the concerns as he termed "impressive" raw sugar's recovery from a low of 13 cents a pound in early May, a revival which came despite a strengthening dollar and heightened uncertainty over the global economic recovery.

Even so, the market appeared to be pricing in "perfect" weather conditions in Brazil and India, the second-ranked producer, which still has months to go before harvesting its 2010-11 cane crop.

"We believe that any evidence of deteriorating weather conditions in either country could cause a significant rebound in futures [prices]," Mr Duff said.

Nonetheless, he trimmed to 16.5 cents a pound, from 17 cents a pound, his prediction for average sugar prices in the last quarter of 2010, forecasting that they would remain at that level in the first three months of 2011 too.

Raw sugar for July delivery stood 2.8% higher at 14.58 cents a pound in New York at 17:15 GMT, with many observers crediting the weaker dollar, which makes assets denominated in the currency more attractive on export markets. 

White sugar for August closed 0.6% higher at $471.90 a tonne in London.