Sugar futures slump on fund data

(Agrimoney) – Sugar futures continued to plunge on Monday, hitting their lowest level in over a month on ideas the market is overbought, after evidence showed higher than expected levels of speculative buying over the week to last Tuesday, despite falling prices.

A weak macroeconomic outlook sent coffee prices sharply downward as well, while soybean prices came under pressure from weak exports, and good harvest prospects in Brazil.

Oil prices fell to a one-month low, as hopes that production will be cut, or stalled, this month retreated, adding pressure across commodity markets.

No end to oil glut

On Friday Saudi Arabia’s deputy crown prince said that oil output would only be reduced if Iran agreed to do likewise.

Such an agreement is seen as unlikely, given the currently frosty relationship between the two countries.

And fresh pressure came over the weekend Iran’s oil minister told a domestic news agency that production and exports would increase, until the country had reclaimed the market share it held before sanctions were imposed.

These comments bode poorly for the outcome of a meeting between Opec countries and Russia, to be held later this month, to discuss the potential of freezing supply.

June Brent crude futures were down 2.2% at $37.81 a barrel, a one month low.

Brazilian economic outlook weakens

And there was additional pressure on coffee and sugar, as the currency of Brazil, the world’s top exporter of both commodities, saw fresh losses.

The real came under pressure as the country’s central bank worsened its outlook for the economy, forecast GDP to fall by 3.73% this year, compared to the 3.66% drop forecast last week.

Oil weakness was also bad news for the commodity exporter.

The bank also lowered its forecast for interest rates this year, for the first time in four months, seeing rates ending the year 0.5 percentage points lower, at 13.78%.

And hopes that the current political turmoil would see a quick resolution, ideally with a more market friendly government stepping in, were dashed, as president Dilma Rousseff vowed never to resign.

The real was down 1.6% at 3.6081 to the dollar in afternoon deals.

Overbought market

Data released after markets closed on Friday showed US hedge funds added to their net-long position in raw sugar last week, where markets were expecting the number of bullish bets to fall.

The move is bearish for prices, as it suggests that there is not much speculative buying power left, and plenty of space for a short-covering spree.

And Brazilian sugar production could also get a boost from the news that Petrobras, the state run oil company, could cut gasoline prices.

Cheaper gasoline would hit demand for ethanol, which is made from sugarcane, meaning that more of the crop is used for sugar production instead.

May raw sugar futures in New York finished down 3.6 percent, at 14.64 cents a pound, the lowest level in nearly a month.

May white sugar futures in London fell 3.1%, to finish at $423.20 a tonne.

Dryness limits robusta losses

The weaker real and the lower oil price bought pressure on arabica coffee. The May arabica contract settled down 3.5%, at 122.80 cents a pound.

But losses in robusta were limited by dry weather in the regions of Brazil where the variety in produced.

And Jack Scoville, of Price Futures, warned “there is talk of drought in Vietnam to go with the known drought in Brazil,” although he noted that crops in the region are less vulnerable, as flowering has “not really started”. Vietnam is the world’s top robusta producer.

“However, the situation could see become serious if rains do not start to appear soon,” Mr Scoville said.

May robusta coffee settled down 0.7%, at $1,474 a tonne.

Weak soybean exports

The weaker real is also bearish for soybeans, of which Brazil is a major exporter.

And extra pressure came on the commodity, as weekly US soybean export inspections missed expectations, with just 200,000 tonnes reported. Markets had been looking for 300,000 to 500,000 tonne.

“This is the start of a very slow period of US soybean shipments,” said Darrell Holaday, and Country Futures.

“There were two cargos for China loaded last week, but there are no cargoes to China showing up the list to load during April,” he said.

Soybean futures finished down by 0.5%, at $9.13 ½ a bushel.

Argentine weather slows harvest

Rains are proving a problem for row crop harvests in Argentina.

Don Keeney, of MDA Weather Services, said that rains over the weekend “stalled corn and soybean harvesting also increased wetness concerns”

With more rains expected across the corn and soybean belt this week, Mr Keeney, warned that harvesting “will remain very slow,” although “some slight improvement” is possible next week.

Brazilian dryness threatens second crop

In Brazil, dry weather is allowing the harvesting of corn and soybeans to progress “very well”.

But Mr Keeney noted that drying in the country’s Northwest “will begin to stress” the second crop of corn there.

US corn export inspections came in at 1.04m tonnes, in line with expectations.

Corn futures finished by 0.1%, at $3.54 ½ a bushel.

Wheat futures edge down

Wheat markets are poised for first US national crop progress report, which was due out later on Monday, but was delayed till Tuesday shortly after Chicago markets closed.

Wheat export inspections came in at 318,348m tonnes, in line with expectations.

Chicago wheat futures finished down by 0.2%, at $4.74 ¾ a bushel.