‘Oversold’ sugar futures attempt to retake 11 cents a pound – again

(Agrimoney) – Raw sugar futures made another attempt to retake the 11-cents-a-pound mark even as Societe Generale named the sweetener, and Kansas City-traded wheat, among the commodities most “vulnerable” to short-covering.

Raw sugar for October delivery touched 11.05 cents a pound in early deals in New York, before easing back to stand at 10.91 cents a pound as of 08:00 local time (13:00 UK time), up 1.7% on the day.

The rise followed a strong, but short-lived, rally in the last session, when the October contract touched 11.09 cents a pound at one point, only to fall back to close at 10.60 cents a pound, a gain of 0.4%.

The performance follows the fall of the contract last week to 10.13 cents a pound – the weakest for a spot lot since June 2008 – amid the commodities sell-off spurred by concerns for China’s economy.

‘Remarkable’

Indeed, the recovery in sugar futures has surprised many observers, given the fears for China, the world’s top importer of the sweetener, and continued weakness in the Brazilian real, which on Wednesday fell to R$3.7721 to $1, the weakest since December 2002.

A weak real cuts the value, in dollar terms, of assets in which Brazil is a major player.

“The stability in [sugar] prices is remarkable because it came as the Brazilian real again fell sharply to decade-plus lows,” said Tobin Gorey at Commonwealth Bank of Australia.

“The two had moved in tandem until recently. But yesterday’s action is another suggesting the relationship has broken down.”

The real was flat against the dollar on Thursday.

Spread closes

Mr Gorey noted, as one price support, the prospect of some rain delays to the harvest in Brazil’s key Centre South district.

“The rainfall is a mix of seasonable or a little heavier that might slow cane harvesting briefly,” he said.

However, other observers pointed to data showing a sharp rise in Thai sugar exports to China, which have quadrupled to 339,821 tonnes in 2015, up to August 21.

The surge, in the face of disappointing Chinese sugar output, has eased concerns over an overhang of sugar in Thailand, which had helped depress the discount of the October 2015 contract, compared with the March 2016 nearly to 1.5 cents a pound as of mid-July.

The cheap price for spot delivery, in essence, incentivised producers to store crop rather than release it to the market, underlining ideas of ample supplies.

The spread has since fallen by one-third to stand at 0.97 cents a pound on Thursday.

‘Vulnerable to short-covering’

Separately, Societe Generale on Thursday named sugar among six crops – along with Kansas City-traded hard red winter wheat, sliver, gasoline, natural gas and WTI crude – which were “most oversold, and vulnerable to short-covering”.

The analysis was based on crops for which prices were within 25% of historical lows, and for which hedge fund positioning unusually negative too.

“The model defines and identifies ‘oversold’ commodities on a weekly basis as those markets lying at the intersection of extremes in both positioning and price,” the bank said.

“These commodities are vulnerable to short-covering rallies.”

Historically, all commodities, bar Comex copper, covered by the model, “have on average been significantly higher in price the following week” after falling into the extreme negative levels for both pricing and hedge fund positioning.