By Rene Pastor                             

   * Supply squeeze to drive sugar surge

   * Funds set to stay long on sugar, soft commodities in vogue

   * Weather in Brazil and India to keep market on edge

   * http://graphics.thomsonreuters.com/0110/CMD_SFT0110.gif

   (Adds details, writes through)

   Sugar prices will reach historic milestones by the end of March 2010 as a global supply shortage tightens its grip on the market and increases investor fervour for the sweetener, a Reuters poll showed.

   But prices are expected to retreat by the end of the year as the supply crunch eases after the key Brazilian centre south harvest comes on stream.

   Benchmark front-month raw sugar prices in New York are seen hitting 30.50 cents per lb by the end of March 2010, a level last seen 29 years ago, according to the survey of 19 traders and analysts conducted in January.

   By the end of the year, however, raw sugar prices are expected to retreat from peaks to 22 cents a lb, down from 26.95 cents at the end of 2009.

   ICE raw sugar <SBc1> hit a 29-year high at 30.10 cents a lb this week, and was trading at 28.74 cents at around midday.

   Analysts put the global sugar deficit at 7.67 million tonnes in 2009/10. While the figure is severe enough to keep prices firm, it is narrower than the 2008/09 figure estimated by the International Sugar Organization (ISO) at 11.3 million tonnes.

   "Seemingly, the carnival of high prices is entering its final stage, which may last, say, 5-6 months," said Sergey Gudoshnikov, a senior economist at the London-based ISO.

   "A big question here (is) what happens if the weather in Brazil and India (two major origins where supply responses are currently expected), is as bad as it was in 2009."

   A similar poll carried out by Reuters in July 2009 put the 2009/10 global sugar deficit at a median of 4.2 million tonnes.

   Sugar futures prices are up about 6 percent so far this year after surging more than 120 percent in 2009 on disappointing harvests in leading producers Brazil and India.

   The price of Liffe (refined) white sugar in London, basis the front month, is seen hitting $775.00 per tonne by the end of the first quarter of 2010 -- which would mark a record high.

   Liffe <LSUc1> sugar hit a historic $767.00 per tonne on Jan. 21.

   But by the end of the year whites are expected to fall back to $640 per tonne, down from $710.20 at the end of 2009.

   The wider investment community was quick to jump on the sugar train, with supply and production difficulties adding up to a strong fundamental story.

   By mid-January, data from the U.S. Commodity Futures Trading Commission showed index investors with $50 billion worth of long positions, with their largest longs in sugar at $9.3 billion.

   "I expect investment funds in 2010 will maintain their strong position in sugar due to the strong fundamental supply/demand situation," said Gary Mead, an analyst at VM Group in London.

   "A global economic recovery -- which we expect to make itself felt by H2 2010 -- will stimulate demand recovery and exacerbate the chances of a further global sugar supply/demand deficit in 2011."

   BRAZIL, INDIA WEATHER KEY

   The question mark hanging over the market is weather conditions in Brazil and India, which some forecasters say can still be affected by El Nino, a weather anomaly.

   El Nino would usually cause drought or dry spells in Asia and floods in South America.

   "If weather problems persist in key growing areas of Brazil, prices will remain firm," said Sterling Smith, an analyst for Country Hedging Inc. in Minnesota.

   Last season, excessive and persistent rainfall in Brazil and a poor monsoon in top consumer India eroded production, underpinning prices as sugar importers scrambled for supplies.

   El Nino is expected by U.S. government forecasters to last into the early summer of 2010.

   That raises the prospect that India´s annual monsoon may again falter and could spawn more rain in Brazil´s  critical centre-south cane areas.

   Investors are expected to continue betting heavily.

   "The de-linkage of sugar price dynamics from other commodities as well as the increased interest in the commodities as an inflation hedge should see fund interest rise," said Czarnikow´s senior sugar analyst Peter De Klerk.

Keywords: SUGAR POLL/2010