(Bloomberg) -- Sugar eased in New York, after hitting the highest in a decade on persistent worries about tight global supplies.

Raw sugar fell 1.4%, reversing an earlier jump of as much as 1.9% amid technical adjustments and profit taking, StoneX analyst Murilo Aguiar said. Futures have surged lately on prospects for limited exports out of India and concerns about production in other key growers, with Wilmar International Ltd. expecting a deficit for this season.

The market has also been driven higher by a lack of deliverable sugar ahead of the expiry of the May white-sugar contract on Friday. Large open interest signals that some traders without physical supplies may need to close out short positions, supporting prices.

The recent rally — which threatens to add to costs for manufacturers of everything from fizzy drinks to baked goods and maintain pressure on global food inflation — has also pushed futures markets into overbought territory.

China is among countries to lower the supply outlook, with the government this week slightly reducing its production estimate for 2022-23 to 9 million tons. Cuts for key growers means the season will end with a world shortage, according to Wilmar’s head of analysis, Karim Salamon.

“Next year’s crop will probably not be better,” he said. “The cane and beet acreage is likely to fall in most areas due to the effects of crop competition.”

For example, some Thai farmers are likely to plant more cassava, while French plantings will drop due to concerns over a crop virus following a ban on neonicotinoid pesticides, Salamon said.

Read More: Sugar Is Getting Even Pricier, Threatening More Food Inflation

Key Drivers

One of the key drivers of the rally has been expectation that India won’t allow additional exports in the season that ends in September. With lackluster supplies from Europe and nations including Pakistan and Thailand, that has left traders looking to a bumper crop in top exporter Brazil to ease the global tightness.

The industry expected 80% of Brazilian mills to have started crushing sugar cane this April, but above-average rains will make it difficult for such expectation to be met, said Michael McDougall, managing director for Paragon Global Markets. 

Raw sugar was down 1.4% at 23.34 cents a pound in New York, and has advanced 16% this year. Its gains have pushed the 14-day relative-strength index above 70, a signal to some that the market may have risen too fast. White sugar dropped 1.5% in London, though is near the highest since 2011.

May white-sugar futures expire at the end of this week, and the number of contracts to be closed — known as the open interest — points to a delivery of more than 500,000 tons.


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