A Mexican worker walking past a huge pile of embargoed sugar in the warehouse of an expropriated sugar refinery in the central Mexican state of Morelos. Reuters/Andrew Winning Mexico has canceled existing sugar export permits to the United States in a dispute over the pace of shipments, according to a letter seen by Reuters, in a flare-up industry sources said could temporarily disrupt supplies.

The letter sent by Mexico's sugar chamber to mills on Monday partly blamed the situation on unfilled positions at the US Department of Commerce, which it said had led to a "legalistic" interpretation of rules with no U.S. counterparts in place in Washington for Mexican officials to negotiate with.

The cancellations marked the latest dispute of a years-long trade row between Mexico - the US' top foreign supplier of sugar - and the United States at a time when cane refiners are struggling with prices and tight supplies, US industry sources said.

The letter, sent by Mexico's sugar chamber to mills on Monday, said existing permits would be reissued in April. The country's sugar mills are in full swing at the height of the harvest.

The Mexican Economy Ministry said it could not immediately comment. Officials from Mexico's sugar chamber declined to comment.

Mexico's sugar quota, set annually by a 2014 trade deal, was established at 820,000 tonnes in the current 2016-17 crop year.

The US sugar industry late last year pressed the Commerce Department to withdraw from a 2014 trade agreement that sets prices and quota for US imports of Mexican sugar, unless the deal can be renegotiated.

The development comes as ties between the United States and Mexico have frayed under President Donald Trump, who took office in January and is seeking to renegotiate the North American Free Trade agreement as he sees the trade deal skewed to favor Mexico.

"Absurd" dispute

US sugar prices have soared since late last year when Washington said the 2014 deal that suspended large duties on sugar from Mexico after a trade investigation may not be working as intended.

The US domestic raw sugar contract on ICE Futures U.S. SFSc1 settled at 31.71 cents per lb on Tuesday, the highest in nearly five years.

The license cancellation by Mexico adds to protracted marketplace uncertainty, said Richard Pasco, president of the Sweetener Users Association trade group.

"We need adequate supplies and the lack of resolution is a problem," he told Reuters in a phone interview on Tuesday.

The document made no suggestion that the present dispute was related to the wider politics, but described as "absurd" an interpretation by "low-level" US Commerce Department officials of a clause in so-called suspension agreements.

The dispute centers on an interpretation of how the Mexican government issues export licenses to ensure supplies enter the United States at a regulated pace.

It was not immediately clear how many sugar export permits were canceled or what penalties Mexico had faced.

The Economy Ministry decided to cancel the permits since it has no counterparts at the US Department of Commerce to resolve the issue, the document said. Mill owners should consider legally challenging the decision, it said.

Staff positions remain unfilled in several US government departments, a situation Mexican officials say has made it difficult to negotiate trade issues. A spokesman for the US Department of Commerce did not respond immediately to a request for comment.

(Writing by Natalie Schachar, additional reporting by Chris Prentice in New York; editing by Frank Jack Daniel, Louise Heavens and G Crosse)