Sugar futures on the Intercontinental Exchange staged their biggest daily gain in nearly 23 years after forecasts suggested weather-disrupted supply may fall short of demand.
The inter-government International Sugar Organization said on Tuesday that the market will record a deficit of 5 million metric tons of sugar in the current year due to adverse weather.
This year's supply shortfall will be the first deficit in five years as harvests are hit by the El Nino weather phenomenon and heavy rain in Brazil, the world's largest producer.
The most actively-traded May sugar futures on the Intercontinental Exchange in the U.S. soared 8.9 percent to settle at 13.90 cents a pound, the largest one-day gain since March 1993, according to Bloomberg's calculations. In London, white sugar for May delivery jumped 6.1 percent to $395.90 a ton on ICE Futures Europe.
Even with the rebound, Australian bank ANZ said Wednesday it believes 2016 and 2017 futures are undervalued and have room to gain to average 15-17 cents per pound as they have been oversold.
Ample near-term supply had hit prices in the front end contracts particularly hard, dragging 2016 and 2017 futures into undervalued territory at the same time as funds also liquidated positions, said ANZ.
"The other tell-tale sign that futures may have been oversold is the sell-off had not been matched by weaker physical sugar prices in Brazil," the bank's analyst Paul Deane added.
Analysts noted that sugar prices could also see upside as prices against ethanol—another product from sugar cane—had diverged.
Ethanol prices have risen substantially in recent months since the Brazilian government increased the minimum percentage of ethanol fuel to be blended into gasoline, boosting demand, BMI Research said in a report last month.
As it is, the percentage of the cane crop in Brazil's major growing region that was converted to sugar hit the lowest level in at least eight years in 2015, added ANZ.
"In a deficit market, we question whether another year can pass where sugar is as unattractively priced for mills versus ethanol," added Deane.
El Nino is not just driving sugar prices. Palm oil has hit its highest level in 21 months earlier in February due to a fall in Malaysian stockpiles to a six-month low the month before.
The gains have since come off due to a forecast showing a rise in production this month.
The controversial commodity, which is used in everything from toothpaste to biscuits is hit by a combination of seasonal and El Nino factors. Malaysia is the world's second-largest producer of palm oil after Indonesia but its data is keenly watched due to its timeliness and reliability.
Still, macro-economic conditions are expected to remain challenging, said chairman and CEO of Wilmar, Kuok Khoon Hong, in an announcement last week. The Singapore Exchange-listed company is the world's largest palm oil trader.
Palm oil price are closely correlated with movements in food and fuel substitutes, soybean and crude oil, which are both under pressure.