Sugar Slumps Along with Brazilian Real

(Nasdaq) – Sugar futures dropped Monday on short-term speculative selling tied to the Brazilian real, which of the sweetener in the world and has recently begun crushing cane for sugar and ethanol production. When the Brazilian real weakens against the dollar, it encourages sales as producers are able to recoup higher profits for their dollar-denominated goods in the local currency.

Raw sugar for July delivery dropped 0.7% to end at 16.21 cents a pound on the ICE Futures U.S. exchange.

Brazil is the largest producer

“The two market faces are close to having a confrontation. The short-term showing the bearish side, but conflicting with the bullish position of the funds,” said Arnaldo Luiz Correa, director of Archer Consulting in Sao Paulo.

As of last Tuesday, hedge funds and other money managers betting on higher prices outweighed bearish traders by 134,616 contracts, the largest net long position for the sugar market in a month, according to data released after Friday’s close from the U.S. Commodity Futures Trading Commission.

Analysts say the funds are betting on a fundamental change in the supply and demand picture for sugar. Following several years of surplus production, new production of sugar in the 2015/2016 season is expected to fall short of demand by approximately 10 million to 11 million tons, which the Hightower Report in Chicago said would be the largest deficit in at least 31 years.

In other markets, cocoa for July was down 0.5% to close at $3,217 a ton, arabica coffee futures for July delivery fell 1.5% to settle at $1.1965 a pound, frozen concentrated orange juice futures for July jumped 6.4% to end at $1.3665 a pound and July cotton rose 0.9% to end at 64.37 cents a pound.