(Bloomberg) -- Sugar futures rose in New York as short covering and signs of tighter supplies buoyed prices that last week slumped to the lowest in more than a year.

Futures gained as much as 2.2% Monday before paring some gains, as dry weather in Brazil pressures the production outlook. National supply company Conab last week cut its 2023-24 output estimate for the country, and drier weather in Brazil for the next six to 10 days will stress crops, according to forecaster Maxar Technologies.

Reports had earlier “indicated that the 2024/25 production was off to a decent start, but the dry conditions over the past few months are expected to eventually pull cane yields down” in Brazil, the Hightower Report said in a note. Thailand’s cane production in the latest season was also down more than 12% from the previous year amid drought and higher costs, the government said.

Sugar prices are benefiting from some bullish supply and demand news “after a brutal start to April,” but the direction of the Brazilian currency will remain closely watched by traders “as a resumption of the downtrend in the real could spark a similar action in sugar,” the Hightower Report analysts wrote on Friday.

Futures in New York have fallen about 3 cents — or 13% — this month. Prices were pressured by a weaker Brazilian real, which encourages more exports, and optimism over Indian output amid forecasts for strong monsoon rains.

The selloff brought the most-active contract into oversold territory last week for the first time since December, signaling that markets may have fallen too far, too fast and could be due for a recovery.

The buying that has supported the market has been commercial short covering as some speculators took profits from falling prices, said Michael McDougall, managing director at Paragon Global Markets. Money managers also flipped to a net bearish position for the first time since 2022, according to Friday data from the Commodity Futures Trading Commission.

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