Farmers in the top two sugar-producing states - western Maharashtra and northern Uttar Pradesh - are demanding a 20 percent increase in cane prices to cover their higher costs after the government cut fertilisers subsidies and raised diesel prices.

Usually most factories in Maharashtra start cane crushing by the first week of November, but the process has been delayed this year as farmers and mills have not yet agreed on cane prices.

Farmers have disrupted transportation in Maharashtra, the top sugar producer in the country, by puncturing tyres of cane carrying vehicles and blocking roads at many places, traders said.

At 1120 GMT, the key December sugar contract on the National Commodity and Derivatives Exchange (NCDEX) was trading up 0.54 percent at 3,333 rupees per 100 KG.

Major spot markets in Maharashtra were closed on Thursday due to a local festival.

"Overall fundamentals are bullish, there is a delay in crushing and demand is still strong in spot markets. Sugar prices are expected to rise further," said Prasoon Mathur, a senior analyst with Religare Commodities.

The government has asked millers to sell 4 million tonnes of sugar in the open market during October and November, higher than the average monthly allocation of around 1.7 million tonnes.

India's sugar output in the 2012/13 crop year, which started on Oct. 1, is likely to fall to 23.5-24 million tonnes from 26 million tonnes a year earlier.