Sugar futures hit 5-year low, as ISO adds to price gloom

(Agrimoney) – Sugar futures fell to their lowest in nearly five years, even as the International Sugar Organization underlined its expectations that a recovery in prices may some time yet in coming.

The intergovernmental group, which had forecast a drop of more than 200,000 tonnes in world sugar stocks over 2014-15, on revised figures – drawn up on a “tel quel” basis rather than the raw sugar equivalent basis the ISO has traditionally used – showed inventories rising by 304,000 tonnes.

The revised data showed consumption rising a little less strongly than previously suggested, while production was see growing faster than the  November data, to reach a record 172.1m tonnes.

“Record high production is expected despite projected lower crops in several leading world sugar producing countries including Brazil, China and Thailand,” the ISO said.

‘Continuing bearish pressure’

“Practically equal global production and consumption are not expected to provide relief to the huge global stocks accumulated over the past four seasons,” the London-based organisation added.

However, a decline in world stocks is needed if prices are to stage a revival.

“Although the ISO still expects a return of a global deficit in 2015-16, any significant price recovery may be muted before a substantial reduction in the level of global surplus stocks occurs.”

“In the remaining months of the current October/September season the market is still likely to face continuing bearish pressure from ample near-term supply and high stocks at both destination and origin.”

Prices tumble

The comments came as sugar for May, the best-traded contract, touched 13.86 cents a pound in New York, a contract low, before recovering a little to 13.89 cents a pound, down 1.8% on the day.

It was also the weakest for a nearest-but-one contract since May 2010.

The return of rains to Brazil’s dryness-hit Centre South region has played a “key role” in sugar price weakness, “as it improves the outlook for the sugar cane harvest which begins in April,” Commerzbank said, also highlighting dollar strength and India’s decision last week to reintroduce a sugar export subsidy.

“An increased Indian export volume will further raise the already amply availability of sugar on the global market, which will drive down international prices.”

Large delivery?

At Sucden Financial, Nick Penney also said that “it looks at the moment as if a large tonnage will be delivered” against the expiring March contract, a factor some view as negative, in indicating that sellers cannot find a better place to sell their supplies.

Data showing the number of futures contracts still open on the March contract showed a “whopping” 66,000 contracts.

The International Sugar Organization also cautioned against hoping for a revival – from “weak” levels below $90 a tonne – in the premium of white sugar over raw sugar.

“As import demand for white sugar seems to be covered adequately by export availability during the current October [2014]/September [2015] season, no significant improvements in the white sugar premium are anticipated for the time being.”