Raw sugar for delivery in October rose more than 3pc to 21,45 cents per pound on the ICE Futures exchange in New York.
Traders have forecast a 45pc drop in India's sugar output to 14.7m tonnes in the crop year to September due to the lack of rain.
India's monsoon has delivered 28pc less rain than expected since the season started in June. Some fear it could turn out to be as bad as crop output during the drought of 2004.
Meanwhile, too much rain has delayed the harvest in Brazil, another top grower of sugar cane. The country's sugar industry has also been hit by the credit crunch.
Prices were also boosted by dealers buying on expectations of higher demand from the US, Mexico and India - demand for sweets rises in India during the peak festival season which runs from August to October.
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