Sugar Extends Gains

(Wall Street Journal) – Sugar prices advanced Monday as the lingering El Niño effect continued to hurt production in many of the world’s top sugar producers, but analysts warned that a correction looks increasingly likely in the overbought market.

Raw-sugar futures contracts for May delivery rose 2% to settle at 16.29 cents a pound at the ICE Futures U.S. exchange, the highest price for the benchmark contract since Nov. 12, 2014.

During the past month, sugar prices have soared 30% amid growing concerns about the tight supplies in South America and Asia, leading many analysts to forecast bigger global deficits for this year’s crop.

“The bullish situation has got more bullish in the last few weeks because of lower crop estimates… but more importantly, we think the deficit has become more tangible,” wrote analysts with Marex Spectron in a Monday note.

Sugar supplies out of India, one of the world’s top producers, were revised lower. The Indian Sugar Mills Association cut their forecast for the country’s 2015/2016 sugar production by another 50,000 metric tons to 25.5 million, as nearly 190 mills have already shut down operations this season due to a lack of cane as a result of the slow transition of El Niño to a normal rainfall regime, according to aWhere Inc., an agricultural intelligence company.

The ISMA estimated that India’s sugar exports may top out at two million tons, well below the government’s target, according to Hightower Report.

Marex Spectron added that yields were also falling in Cuba, northeast Brazil, southern Africa, Thailand, China and the Philippines. “All of them (were) biggish producing areas and most of the losses (were) due to the tail end of El Niño,” they noted.

On the demand side, the picture was mixed. While Indonesia is likely to increase their sugar imports this year, China, the biggest sugar consumer, cut its imports again in February, down 13.5% from a year earlier.

“There’s a commodity buying frenzy that’s going on, as the macro outlook and sentiment on commodities have changed,” said Nick Gentile, managing partner at Nickjen Capital, noting that the open interest in sugar market has increased significantly over the few sessions.

However, the sweetener market has technically entered the overbought territory, some analysts warned. In the week ended March 15, noncommercial and non-reportable traders held a net long position of 202,722 contracts, an increase of 26% in just one week.

In addition, the premium of the front-end May contract over the July contract is still relatively small, raising questions over the physical demand for sugar.

“If you didn’t come to the party, you’re a little late; so you probably have to pass on this party,” Mr. Gentile said. Chicago-based Hightower echoed in a Monday note to its clients that “new buyers can wait for a significant correction before entry.”

In other markets, cocoa for May lost 1.5% to settle at $3,072 a ton; frozen concentrated orange-juice futures for May edged up 0.1% to close at $1.2790 a pound; May cotton rose 1.8% to settle at 58.17 cents a pound. Coffee prices for May deliver fell 2.1% to end at $1.3155 per pound.