Australia & New Zealand Bank, highlighting dryness in Brazil, hardened its caution over betting on further drops in sugar prices, even as prices fell below 15 cents a pound for the first time in more than three years.
ANZ senior ag economist Paul Deane underlined a warning that Brazilian dryness poses a risk to ideas of a further decline in sugar prices, which are already trading at amongst their lowest levels since 2010.
While the sugar market "has taken little notice" of below-average rainfall in Brazil's key Centre South region over the past six weeks, it represents a growing threat to hopes for a rise in sugarcane output in 2014-15.
"With little rain forecast over the next fortnight in the region, the chances of Brazil's cane production being revised lower are increasing," Mr Deane said, flagging the potential impact on raising prices.
"For producers, it is this type of scenario which could well present better opportunities to hedge over coming months."
As an extra concern for sugar bears, the dry spell comes at a time when they have a large net short position in New York raw sugar futures and options, questioning the appetite for further short bets, and leaving open the prospect of a spike in prices if these holdings are closed.
Forecasts for Brazil Centre South cane and (sugar) output 2014-15
Archer Consulting: 630m tonnes, (34m tones)
ANZ: 610m tonnes, (36.5m tonnes)
Bio Agencia: 600m tonnes, (34m-35m tonnes)
Safras e Mercado: 618m tonnes, (35m tonnes
"Funds are significantly net short for the first time in five months," Mr Deane said.
"With shorts now looking stretched, and sugar prices showing a very strong correlation to movements in fund positions over the last month, our bias would be to be tactically long rather than short if fund positioning was the only factor."
The dynamics mean that "two key pillars are in place, leaving sugar potentially poised for a rally".
However, Mr Deane, while noting that New York raw sugar futures were nearing the low point he has forecast for prices in the first half of the year, stopped short of issuing a buying recommendation.
At Sucden Financial, Thomas Kujawa was less recalcitrant in foreseeing further pressure on prices for now, with the prospect of the annual Kingsman Dubai Sugar Conference, from February 8-11, a key event in the industry calendar, likely to allow bearish sentiment to remain in the ascendancy.
"We think little is going to change to the 'sugar story' until we get closer to the build-up to the Dubai convention," Mr Kujawa said.
"Bulls continue to be on the back foot. A test of 15 cents a pound seems likely in the short term."
Indeed, New York raw sugar futures for March temporarily fell below 15 cents a pound for the first time since June 2010, touching 14.97 cents a pound, before recovering some ground to close at 15.03 cents a pound, a drop of 1.3% on the day.