By Joe Wallace 

August has been a bitter month for sugar traders as a potential surfeit of Indian exports, the strong dollar and a slowing world economy combined to push prices toward their lowest level in a decade.

Raw-sugar prices are on course for their biggest one-month decline this year, having fallen 6.1% to 11 cents a pound in the New York futures market. The sweet ingredient has rarely been cheaper since prices surged in 2009 and 2010.

The drop extends a two-year stretch in which depressed prices have squeezed profits at sugar refineries, hurt farmers whose livelihoods depend on the crop and led to tensions between nations that are major producers. A big part of the decline stems from India, which overtook Brazil as the world's biggest grower of sugar in the 2018-19 season, producing 33.1 million tons.

"We're really seeing a serious excess of sugar right now," said Kona Haque, head of research at London-based trading house ED&F Man. "Thailand had a mega crop. India had a huge crop. Brazil is doing everything it can to balance the market."

The current crop from India will be the third in a row that exceeds 30 million tons, the U.S. Department of Agriculture forecast, and the 2020-21 harvest is likely to be larger still following a rapid improvement in monsoon rainfall over the past month.

Bumper harvests have swelled India's sugar stockpiles to around 17.6 million tons, according to the USDA. The prospect of these being sold on international markets has weighed on global prices for much of the year.

Many participants in the sugar market expect the Indian government to renew an export subsidy program for refineries in the coming weeks, albeit with some tweaks. The policy, introduced last year, contributed to a 52% rise in exports and has drawn ire from rival producers. The World Trade Organization is investigating complaints by Australia, Brazil and Guatemala that the subsidies are illegal.

At a WTO meeting on Aug. 15, India said its policies weren't distorting the global sugar market and denied that the nation had broken WTO rules. The support aims to help 35 million vulnerable farmers, according to Indian authorities.

Meanwhile, the dollar has strengthened, denting the price of commodities that are sold overseas from emerging markets. Cocoa prices have dropped further than sugar in August.

The price of sugar has been eroded by the same concerns about global economic-growth prospects that have pushed down Brent crude-oil prices by 6.7% over the past month. That is because it is closely tied to energy costs as Brazilian mills are able to refine sugar cane into either ethanol or sugar.

Robin Shaw, an analyst at London-based brokerage Marex Spectron, describes the price of oil as "a compass for sugar because of the ethanol parity in Brazil." Swings in the energy market "can sway sugar production by about 10 million tons in the course of a season -- which is massive," he added.

Adding to the long-term pressure on sugar prices, governments in some developed economies are seeking to discourage consumption to tackle conditions such as obesity and diabetes. Demand in emerging markets, though hard to measure precisely, is growing slowly amid pressure on incomes from weak local currencies.

Some analysts think prices could pick up. The global demand for sugar will exceed new supplies by at least 4 million tons in the 2019-20 season, according to forecasts from Tracey Allen, an agricultural commodities strategist at JPMorgan Chase. Prices need to rise this year to encourage Brazilian millers to produce more sugar, she said.

But for now, sugar producers are struggling. Germany's Südzucker AG, Europe's largest sugar refiner, said in July that revenue in its sugar unit fell 16% in the three months through May from a year earlier.

"Everyone's losing money," said Julian Price, an independent sugar consultant and former president of the European Association of Sugar Traders. "I don't think it's been as bad as this almost forever."

In the oil market, prices rose Monday after falling last week. Speaking at the Group of Seven summit, President Trump struck a more moderate tone on the U.S.-China trade war, saying that negotiations between the two countries were "more meaningful than at any time."

When asked whether he would consider delaying or canceling planned tariffs on China, he said, "Anything's possible." The comments lifted investor optimism that trade tensions, which have roiled markets from stocks to commodities in recent weeks, will ease.

West Texas Intermediate, the U.S. crude benchmark, climbed 1.2% to $54.80 a barrel. Brent, the global reference price, added 0.6% to $59.69.

Also boosting sentiment among oil traders was data on Friday showing that the number of active U.S. oil rigs fell by 16 to 754, the lowest since January 2018.

Persistently low oil prices near $50 a barrel have forced producers to tap the brakes on new activity. By region, the oil rig-count in the shale-focused Permian Basin of West Texas and New Mexico dropped to a 17-month low, while other basins including Ardmore Woodford in Oklahoma also saw declines.

Hedge funds and other speculative investors reduced bearish bets on U.S. crude oil, pushing the ratio of bullish bets to bearish wagers to its highest level in nearly three months, Commodity Futures Trading Commission data through the week ended Aug. 20 show.

Bearish bets fell to about 50,000 contracts from roughly 67,000 contracts the prior week, lifting the ratio of bullish bets to bearish ones above 5 for the first time since late May. The pullback in short bets comes as new pipelines that transport crude to the Gulf Coast have increased interest in the oil market, traders said, pushing prices of U.S. crude closer to Brent, the global price benchmark.

Amrith Ramkumar and Dan Molinski contributed to this article.

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

August 26, 2019 11:31 ET (15:31 GMT)