Sugar futures hit six-year low as ANZ adds to pressure

(Agrimoney) – Sugar futures plumbed a fresh six-year low, more than wiping out the last session’s narrow gains, as Australia and New Zealand Bank underlined the bearish mood in the market, seeing “little reprieve likely” for prices.

In New York, July raw sugar futures traded as low as 11.44 cents a pound, the lowest point since January 2009.

The comments came as ANZ added to negative comment on prices, flagging “ongoing headwinds” in the sugar market thanks to a weak Brazilian real and high sugar output from India, the second ranked producer of the sweetener.

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

The price fall follows bearish outlooks given by other market analysts to Agrimoney.com on Friday.

No lift from Brazil

ANZ, said that there was “little reprieve likely in the quarter ahead” from downward pressure on prices, which even factors such as initial worries over the Brazilian Centre South cane harvest had failed shift.

“Even wet weather and a poor start to the volume of cane crushed in Brazil’s Centre South could not instil a sustained rally in sugar prices in the April-to-June quarter,” the bank said.

The Centre South is responsible for some 90% of sugar output in Brazil, the top producer and exporter of the sweetener.

Last week, Brazil’s sugar and ethanol group Unica saw sugar production in Brazil’s key Centre South region lagging behind last year thanks to low sugar concentrations in cane, and a higher quantity of crop diverted to ethanol production.

Real “key risk”

ANZ pegged a “renewed depreciation of the real” as its “key risk” for pressing sugar markets lower.

Although the real is already trading at an 11-year low against a basket of currencies, the bank saw risks of further depreciation given the country’s current economic woes.

The Brazilian central has vowed to fight domestic inflation by maintaining high interest rates.

However, this tighter monetary policy is also raising concerns of causing damage which would end up itself undermining the real.

“Sign of desperation”

Separately, commodities broker Marex Spectron on Monday said that potential weather upsets offered the biggest potential for price support.

“The only thing which might turn this market – apart from the simple passage of time which is presumably bringing us nearer to the inevitable balance, and then deficit, which lie ahead – would be weather,” the broker said.

The group noted dry weather in Russia, which has forced some beet replanting, besides concerns about the slow progress of the Indian monsoon, which is forecast to deliver 88% of normal moisture, a level considered below the drought threshold.

However, the broker downplayed these concerns, pointing out that beet is resilient to weather, while Indian sugar production is well irrigated with good water reserves.

Last week, Robin Shaw, analyst at Marex Spectron, told Agrimoney that “I think it’s always the last sign of desperation when you get interested the weather”.

He added that for sugar prices “the line of least resistance is down”.

New York July sugar futures closed down 2.2% at 11.46 cents a pound in New York.