(Clarifies in paragraph four that 50 mills have closed since 2007)

* Production costs exceed market price in many areas

* Stand-off between cane farmers, mills in India

* Global market seen balanced or in deficit in 2014/15

By David Brough

LONDON, Nov 4 (Reuters) - A global merchant's plan to sell its loss-making sugar milling operation is the first sign that low prices could drive mills out of business and move the market from a surplus to a deficit as soon as next season.

Merchant Bunge Ltd's new chief executive has signalled plans to shed its Brazilian sugar milling business, making it the first such player to consider exiting the once-hot sector, which has swallowed billions of dollars of investment.

Mills in major producers Brazil, India and China have struggled with tumbling margins and years of falling prices, and a coming wave of closures appears to be a near-certainty.

In the centre-south growing region of Brazil, the world's top sugar producer and exporter, up to 50 sugar mills have closed since 2007 and as many as 60 of the 330 now active mills may close or be taken over in the next few years, according to Brazilian cane industry group Unica.

Benchmark sugar prices sank to three-year lows in July , succumbing to the huge global surpluses of recent years.

Meanwhile, governments have supported the prices that mills must pay to cane farmers. The combination of high local costs and falling global prices have squeezed mills' margins.

Production costs for a pound of sugar in many areas now exceed the world market price.

Stefan Uhlenbrock, an analyst with F.O. Licht, said there was a real risk that mills in big producing countries such as Brazil could go out of business.

"The surpluses in the world market and the financial difficulties of mills mean that sooner or later producers will turn off the tap," Uhlenbrock said. "This could trigger a severe downturn in sugar production into 2014/15."

Sergey Gudoshnikov, a senior economist of the International Sugar Organization (ISO), also predicted consolidation in the milling sector, which would give survivors the benefits of economies of scale and greater flexibility.

"It is without question that mills' margins are suffering," Gudoshnikov said. "I am more than sure that there will be more consolidation."

A leading Indian miller noted huge pressure on margins of sugar mills in India, the world's top sugar consumer.

"The situation is grim to say the least," said Abinash Verma, director general of the Indian Sugar Mills Association.

"Prices have not only been depressed for a long time, they have been consistently below production cost, and we have been asking the government to step in to help us stabilise prices."