By Julie Wernau

Sugar futures shot higher for the third day in a row after Brazil reported a larger drop in cane production in the world's largest growing region than analysts had anticipated.

Raw sugar for March rose 2.6% to close at 19.49 cents a pound on the ICE Futures U.S. exchange, its highest close since Dec. 7.

Brazilian sugar mills in the country's center-south region crushed 60% less cane in the first half of December than the same period last year, according to industry group Unica.

The mills crushed 7.1 million metric tons of cane in the period and produced 362,000 tons of sugar, a drop of 43.9%, and converted about 59% of cane to produce 336million liters of ethanol, a 57.7% drop.

Analysts had expected a 30-35% drop in sugar production. The first half of December had been impacted by rain interruptions and many mills had finished crushing cane for the season. The production drop contrasts with last year when a number of mills continued crushing into March because weakness in the Brazilian currency and high debt payments in the mill business were encouraging producers to sell as much as possible.

Still, sugar production is up 16.7% for the full season at 35.1 million tons, as higher prices for sugar encouraged mills to convert a larger percentage of cane to sugar.

"We would advocate looking to the upside from here, with the new year and fresh money coming to the market. We feel a slight change in sentiment can cause a sharp rally in this market," Marex Spectron said in a report.

Michael McDougall at Societe Generale in New York said an announcement by China that it would only auction 92,000 tons of sugar on Dec. 30 was also bullish for traders who'd anticipated that 300,000 tons would be auctions.

In other markets, cocoa for March was down 1.8% to close at $2,165 a ton, arabica coffee rose 1.5% to settle at $1.3545 a pound, frozen concentrated orange juice for March jumped 1.6% to end at $1.905 a pound and March cotton rose 1.1% to settle at 70.50 cents a pound.

Write to Julie Wernau at julie.wernau@wsj.com

(END) Dow Jones Newswires

December 29, 2016 17:58 ET (22:58 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.