Sugar and Cotton Turn Up, With India in Driver's Seat

China may be Asia's fastest-growing major economy, but the continent's second-biggest market, India, is driving prices of two prized commodities.

Sugar and cotton prices are surging as India restricts exports to make sure its own booming population has enough of both commodities. Poor harvests from key sugar and cotton producers have left both markets struggling to meet growing global demand.

Farmers jump from a heap of sugarcanes loaded on a tractor outside a Morinda, India, sugar mill last week.

Though India's economy is growing fast, commodities markets typically pay more attention to its larger neighbor. China is already one of the top importers of oil, copper and soybeans, and high prices for those commodities and others are heavily dependent on the country's blistering economic growth. India's influence is on the supply end of the market as a major agricultural exporter.

Cotton prices rose to their exchange-permitted limit for three consecutive days last week after the Indian government announced it would block exports of cotton yarn. December futures ended Friday up 3.6% at $1.4233 a pound on the ICE Futures U.S. exchange, having recovered half of the 24% slide they had after reaching post-Civil War highs last month.

Sugar prices took a tumble of their own after reaching a 30-year high in mid-November. They have since risen 13%, ending Friday at 29.50 cents a pound.

Textile Minister Dayanidhi Maran last month decried the lack of cotton in the Indian market, saying he was more concerned about the supplies to local textile mills than satisfying export demand. Heavy rains have delayed harvesting in key regions, further limiting supplies to the local market.

Demand for Indian cotton has soared in the past few months as the country is expecting a bumper crop, while two other key producers—China and Pakistan—have estimated losses of the fiber crops due to floods. Meanwhile, India is in the eye of another storm: sugar.

India is the world's top sugar consumer and its second-biggest producer, after Brazil. But unseasonably heavy rains in the country's main sugar-growing region caused a 10% drop in production in October and November, the first two months of the crop year. The government last week said it will consider exports only after seeing the size of the crop, with a decision likely by year's end.

"We may think of allowing more sugar exports on a monthly basis, depending on production and availability," said Farm Minister Sharad Pawar.

India is expected to export between two million and three million tons of sugar in the 2010-11 season, which began in October. Mr. Pawar said total production is unlikely to fall below 24.5 million metric tons, down from an earlier estimated 25 million to 26 million tons.

March sugar futures' 29.50 cents a pound on ICE Futures U.S. on Friday was a two-week high.

"They're going to keep doing that until they're sure about [supplies]," said Jack Scoville, vice president at Price Futures Group in Chicago. "The world market was anticipating X amount to be coming out of there, and now they might not get it, so you have to factor that into the price."

(Source: http://online.wsj.com/article/SB10001424052748703350104575653103568116346.html)