Sept. 3 (Bloomberg) -- Sugar futures may slump 24 percent within nine months as the highest price in 28 years curbs demand and Brazilian supplies become available, said Craig Ruffolo, a McKeany-Flavell Co. senior vice president.

“Countries cannot continue to pay 23 cents a pound for sugar,” Ruffolo said in a telephone interview from Oakland, California. “The market is already anticipating a fall sometime in May, June, when the Brazilians’ next harvest comes into play.”

Raw sugar on ICE Futures U.S. is in an inverted market, as contracts after March 2010 are cheaper than nearby positions. The October contract, currently the most active, fell 2.3 percent to close at 23.68 cents a pound yesterday. The October 2010 contract slipped 2 percent to 20.86 cents and the March 2012 future settled at 16.85 cents.

A 2.8-cent discount within a 12-month range indicates that “the market right now doesn’t believe this rally is sustainable,” Ruffolo said. “Along with demand rationing, you may have high-cost producers that may have inventories of sugar sitting around and want to export it at 23 cents a pound because they can make money at 23 cents a pound.”

Prices of raw sugar for world consumption have doubled this year, as adverse weather curbs output in Brazil and India, the world’s largest producers. Futures have fallen for two days after reaching the highest price since February 2008 on Sept. 1.

Rally May Sour

“In the near term, sugar has more room to rally, but once you hit May, June next year, we’re going to see a sell-off,” Ruffolo said.

By that time, the July futures will be the most active and may fall to 18 cents, or down 24 percent from yesterday’s close on the most-active contract, Ruffolo said. The March 2010 contract, which reached 26.25 cents on Sept. 1, won’t go much higher than that between now and when it expires, he said.

Egypt canceled a tender to buy 50,000 metric tons of raw sugar last week, analysts have said. Such cancellations “will most likely continue to occur” as long as nearby contracts trade between 22 cents and 26 cents, Ruffolo said. McKeany- Flavell, founded in 1948 as a sugar broker, also trades cocoa, edible oils and orange juice.

Privately run mills in Pakistan, Asia’s third-largest sugar consumer, don’t plan to import the sweetener because of high prices, the nation’s sugar mills association said yesterday.

“It is not viable for the private sector,” said Iskandar Khan, chairman of the association. Including freight fees, imported sugar costs 78 cents a kilogram, about 30 cents more than domestic supplies, he said.

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.

Last Updated: September 3, 2009 00:01 EDT