June 28 (Bloomberg) -- Prices of sugar, cotton, soybeans and other agricultural commodities may rise as economic growth in China boosts food demand and a surge in oil to $60 a barrel promotes use of fuels and other products derived from crops.

China's economic growth, averaging 8.3 percent a year this decade, has raised incomes in the country of 1.3 billion people, who are eating more protein-rich food, including meats.

``It takes six pounds of grain to produce one pound of meat,'' said James Gutman, a senior economist at the Goldman Sachs Group Inc. commodities research team in London. ``The long- term outlook for certain crops is good.''

James Rogers, the former hedge fund manager who co-founded the Quantum fund with George Soros in 1970, allocates 29.9 percent of his commodity index fund to agriculture, led by wheat, corn and soy. The fund has a 3 percent weighting in cotton.

``With oil prices this high, people will use natural fibers rather than synthetic fibers'' derived from oil, he said.

Cotton, which fell 36 percent last year on the New York Board of Trade, is trading at 54.79 cents a pound for December delivery, 13 percent higher since the year started.

Goldman Sachs, the No. 3 securities firm by capital, has a weighting of 10.98 percent in agriculture in its commodity index, led by wheat, corn and soybeans. It has another 4.85 percent in livestock. In aggregate, that's higher than its weighting in Brent crude oil and just behind West Texas Intermediate oil, the biggest in the index.

Sweet Power

Sugar prices may outpace gains in other agricultural commodities because the rise in crude oil prices in the last year will drive up demand for ethanol processed from the sweetener as an auto fuel, said Marc Faber, who manages $300 million of funds at Marc Faber Ltd.

Crude oil traded in New York has risen 66 percent in the last 12 months as China's demand soaks up supply.

``Sugar can be used as energy,'' said Faber at the Commodity Investment World Asia 2005 conference in Hong Kong last week. ``If oil prices stay high, more sugar will be used for ethanol.''

Ethanol is an alcohol added to gasoline to raise the oxygen content so the fuel burns more completely, reducing emissions. Ethanol, which is also made from corn, is used to stretch gasoline supplies when crude oil prices rise.

``Oil has reached that point where it's triggering interest in sugar,'' said Chief Executive Sunny Verghese of Olam International Ltd. in an interview at the same conference. The Singapore-based company ships commodities to customers such as Nestle SA and Kraft Foods Inc.

The U.S. House Energy and Commerce Committee in April approved proposed legislation requiring refiners to boost ethanol use to 5 billion gallons a year by 2012, 30 percent higher than current demand.

Sugar Gains

White sugar traded on the London International Financial Futures Exchange has gained 17 percent in the past 12 months to $276.50 a metric ton. In six months, it could fetch $285, Verghese said.

Raw sugar on the New York Board of Trade for October delivery has gained 18 percent in a year to 9.09 cents a pound.

``Brazil can make or break the world sugar market -- it now produces 38 percent of world sugar,'' he said. ``It converts half to ethanol. If it converts more, there will be a shortage and a sharp rise in prices.''

Sugar-producing countries such as ``Brazil, Thailand, Australia, South Africa and Cuba will be the winners,'' he said.

Monteiro Aranha SA, a Brazilian petrochemical and forest- products holding company, is seeking partners for a $100 million sugar-cane ethanol project to tap rising world demand for cleaner- burning fuels.

Corn, another source of ethanol, has gained 2.5 percent to $2.36 a bushel for delivery in September on the Chicago Board of Trade since the start of this year after falling 18 percent in 2004.

Soy

China, the world's biggest soybean buyer, more than doubled its imports last month as soybean crushers stepped up deliveries to meet demand for animal feed made from the oilseed.

China imported 2 million metric tons of soybeans in May, 143 percent more than a year earlier, according to the Customs General Administration of China. In April, imports rose 55 percent.

``The livestock and poultry industries have been adding to their herds and flocks, raising demand for feed,'' Monica Tu, an oilseed analyst at Shanghai JC Intelligence Co., said by telephone.

China's soybean imports may jump 42 percent to 24.2 million tons in the year ending Sept. 30, from 17 million tons in the previous year, Tu said.

Gains?

Faber recommends sugar, wheat and corn among agricultural investments to hedge against rising prices.

``Grains have 20 percent downside risk and if you are lucky, they have the potential to rise 100-200 percent,'' he said. ``There are very few investments where you can say that.''

Wheat, which fell 12 percent in 2004, has risen 6.13 percent this year to $3.46 a bushel on the Chicago Board of Trade for September delivery.

``In the case of grains, you have the issue of fewer acres planted today than a few years ago, for wheat and corn,'' said Robert Greer, product manager for the Pimco Commodity RealReturn Strategy Fund, which has over $9 billion in assets.

China, the world's biggest consumer of wheat, imported 66 percent more of the grain in the first five months to 2.5 million tons.

``Food and fiber are the way to go,'' said Verghese of Olam.

To contact the reporter on this story: Claire Leow in Jakarta cleow@bloomberg.net

Last Updated: June 27, 2005 10:03 EDT