LONDON — Sugar, the best-performing commodity the past 12 months, may beat bonds, stocks and oil for a second straight year.

"Sugar could quadruple from here, and it would still be below its all-time high," said former George Soros partner James Rogers, 63, who founded Lausanne, Switzerland-based Diapason Commodities Management SA, which oversees $3.5 billion. "The rally hasn't even started yet. And the fundamentals are changing dramatically in a positive way."

Prices are soaring as record gasoline costs prompt Brazil, the world's biggest sugar producer, to devote more than half of its crop to ethanol production to meet a goal of eliminating gas-fueled cars in four years. A drought in Thailand, the second-biggest exporter, and a 50 percent rise in Chinese sugar demand the past decade are compounding the supply squeeze.

"Sugar will definitely outperform bonds and equities this year, primarily because of supply constraints," said Andreas Meyer, 39, who helps manage $130 million at Vienna-based Merit Alternative Investments GmbH and set up the Commodities Opportunities Fund two months ago.

Sugar climbed 60 percent in 2005 and is up 12 percent this year. By comparison, the Standard and Poor's 500 Index of stocks has gained 4.7 percent since Dec. 31, and U.S. government bonds have dropped 0.44 percent, according to Merrill Lynch & Co.

"It's a meager year for bond returns compared to what may be in the offing in other asset classes," said Jack Malvey, chief global fixed-income strategist at Lehman Brothers Inc. in New York. Bonds globally may return as little as 2 percent this year, Malvey said.

Raw sugar for May delivery rose 0.18 cent to 16.62 cents a pound yesterday on the New York Board of Trade. It may rise 52 percent this year to 25 cents a pound, according to Meyer at Merit Alternative Investments. Christopher Wyke, director of commodities for Schroders Plc in London, says prices will top 19.30 cents a pound. The record was 66 cents a pound in 1974.

Sugar is a top pick for Rogers, who co-founded the Quantum fund with Soros in 1970 and has been urging investors to buy commodities rather than stocks or bonds for the next 10 to 15 years. Rogers says producers of raw materials failed to invest in their business when prices were low, so they will be unable to keep pace with rising demand.

Sugar's rally has boosted costs for companies such as cereal maker Kellogg Co., and candy maker Hershey Co. Hershey's cost of sales last year rose 11 percent, and Kellogg's rose 5.9 percent.

Global sugar production will fall short of demand this year by twice as much as initially expected as world stockpiles dwindle and consumption grows, the London-based International Sugar Organization said in a March 8 report. The shortfall will be 2.45 million U.S. tons in the 2005-2006 crop year, up from a November forecast of 1.1 million U.S. tons, the ISO said.

The booming economies of China and India, the world's most populous nations, contribute to the shortfall. India, the No. 2 producer and biggest consumer of sugar, became an importer last year after two years of falling harvests, shipping in more than 2 million extra tons of the commodity. China, the world's second-biggest user, is trying to stem price gains by selling almost its entire 1 million tons of sugar reserves at auctions this year.

Consumption of sugar in China increased almost 50 percent in the past 10 years, according to the U.S. Department of Agriculture.

On the other side of the world, a new generation of vehicles in Brazil is deepening the sugar shortfall. So-called flexi-fuel cars, which allow motorists to switch to ethanol when it's cheaper, may account for all the nation's cars by 2011 under government plans. Brazil is the world's biggest user of ethanol, devoting almost half its sugar to making the fuel, or about a 10th of the world's annual 148 million tons of production.