Sugar Drops Most Since September on Brazil Outlook

(Bloomberg) – Sugar fell the most since September as weather conditions improved for Brazil’s cane crop, the world’s largest, and a stronger dollar curbed the appeal of commodities as investments. Coffee and cocoa dropped.

Brazil’s Center South, the world’s top sugar-producing region, will get rains in the next 10 days, easing concern that an earlier dry spell would erode yields from this year’s harvest, weather forecaster Somar Meteorologia said today.

There are “some forecasts for rains in southern Brazil that could be beneficial,” Jack Scoville, a vice president for Price Futures Group in Chicago, said in an e-mail.

Raw sugar for March delivery plunged 5.3 percent to settle at 23.13 cents a pound at 2 p.m. on ICE Futures in New York, the biggest decline since Sept. 16. The sweetener sank 27 percent in 2011 as crops expanded in Asia and Europe.

Sugar posted the biggest decline today among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which fell as much as 1.5 percent on signs of a worsening debt crisis in Europe. The euro fell to an 11-year low against the yen and the weakest level in 15 months versus the dollar.

“Fund selling on continued dollar strength” led the slide, Scoville said.

Pre-set sell orders “were triggered around 23.24 cents a pound,” accelerating the drop, Jeff Bauml, a senior vice president at R.J. O’Brien & Associates in New York, said in a telephone interview. “The market is very nervous about European banks.”

Put Options

Prices also were weighed down by an increase in purchases of put options that provide the holder the right, but not the obligation, to sell sugar at 20 cents to 21 cents a pound by a set date, Jeff Dobrydney, a vice president for Wilton, Connecticut-based Jenkins Sugar Group, said by telephone.

“The market is in a precarious situation,” based on technical analysis, Dobrydney said. “If we break below 22.59 cents,” the low reached on Dec. 27, “we could see another selloff like today,” he said.

Ethanol production in the U.S. rose to a record 963,000 barrels last week, according to an Energy Department report, signaling less need for sugar-based fuel imports from Brazil, Sterling Smith, an analyst with Country Hedging in St. Paul,Minnesota, said in an e-mail.

Arabica-coffee futures for March delivery declined 3.2 percent to close at $2.1955 a pound in New York, the biggest drop since Oct. 31. The price sank 29 percent since reaching a 14-year high in May.

Cocoa futures for March delivery dropped 2.3 percent to $2,028 a metric ton in New York, the second day of losses, after touching $2,016, the lowest for a most-active contract since Dec. 12. The commodity fell 31 percent last year.

In London futures trading, refined sugar, robusta coffee and cocoa also declined on NYSE Liffe.

To contact the reporter on this story: Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net