Australia-based Green Pool pegged the world production deficit in 2014-15 at 100,000 tonnes, down from a figure three months ago of a 1.0m-tonne shortfall.

The reduction came despite an estimate for production in Brazil's key Centre South region of just 31.3m tonnes, compared with a previous forecast of 31.7m-32.0m tonnes.

The revised estimate is a little lower than the 31.36m tonnes at which cane industry group Unica has pegged the crop, while Brazilian consultancy Datagro, for instance, forecasts output at 32.5m tonnes, and rival Job Economia at 32.3m tonnes.

'Most controversial forecast'

Green Pool's estimate, which the group termed "perhaps our most controversial forecast", reflected "a combination of a more pronounced swing to ethanol in September, and more normal rainfall from here on in the crop".

The group actually forecast cane production at 552m tonnes, in line with Job Economia but a little higher than Unica, with the lower sugar estimate reflecting the extra crop turned into ethanol rather than sweetener.

However, the downgrade was offset by a cut to the estimate for world consumption growth, reduced to 2.9m tonnes, amid signs of a "stagnating" market.

"Despite some enormous estimates of sugar consumption - underwritten by Asia, Africa and India… sugar's [consumption] growth has been mediocre," Green Pool said.

Market retreat

The comments came as a rally in sugar futures stalled, undermined by a weaker Brazilian real and ideas that the wave in short-covering wave which boosted prices late last week, and earlier on Monday, was running out of steam.

"The long-over-expected bounce has happened and we are all in the position of wondering how much more momentum can be generated," Thomas Kujawa, co-head of the softs desk at Sucden Financial, said.

The weakness in the real, for which softness spells lower values for dollar-denominated goods of which Brazil is a key market, "has some sugar bulls on the sidelines just in case [the currency] slides further during the election run-in".

Brazil faces a general election this weekend.

Ethanol vs sugar

Raw sugar for March, New York's best-traded contract, hit 16.91 cents a pound, only to fall back 16.60 cents a pound as of 08:45 local time (13:45 UK time).

Marex Spectron highlighted that values had returned to around the key level where it offered equal returns to ethanol for mills from crushing cane.

"We are back where we started two months ago, with the spot month approaching the 16.50-18.50 cents-a-pound range which, not coincidentally, seems to be around the projected level of ethanol parity," the London broker said.

The lot has recovered from contract low of 15.51 cents a pound reached last week.