Sugar Prices End Lower on Economic Concerns in Brazil

(Nasdaq) – Sugar prices fell for a second straight session Monday, as Brazil’s currency fell to a 12 1/2-year low against the dollar.

Raw sugar for October delivery fell 2.6% to end at 10.69 cents a pound on the ICE Future U.S. exchange, with the Brazilian real down 1.2% recently against the dollar. Brazil is the world’s largest producer of sugar, which is sold in dollars. When the real is weak against the dollar, it encourages selling because more profits are repatriated in Brazil.

“It seems to be a currency-related play,” said Jack Scoville, vice president at Price Futures Group in Chicago.

Brazil’s economy is largely dependent on commodity exports and the real has been sinking against the dollar as commodity prices have fallen. The S&P GSCI Commodity Index is down 9.4% this year. At the same time, a corruption scandal at the state-controlled energy firm Petrobras has shaken investor confidence in the Brazilian government. Investors in Brazilian markets were surprised Monday by reports that the country could face a deficit next year after 12 years of primary surpluses, potentially putting its investment-grade credit rating at risk.

The real has been one of the worst-performing emerging-markets currencies of 2015.

Still, sugar has managed to stage a recovery after falling as low as 10.13 cents a pound last week as part of a global selloff fueled by fears of a slowing Chinese economy. Sugar fared better than some commodities, said James Liddiard, senior vice president at Agrilion Commodity Advisers in New York, because much of the selloff was fueled by momentum trading rather than traders setting up new positions to bet on lower prices.

“If you talk to a trader, would you really want to be a seller at 10.13 cents a pound?” he said. “What is the downside opportunity? The lower you go, the harder it is for a new short position to come in.”

Mr. Liddiard said if sugar manages to fall below 10.13 cents a pound, it could trigger more selling because it negates last week’s key reversal. A rise above 11.20 cents a pound, he said, would trigger more short covering.

Sugar staged the biggest one-day rally in more than a year Thursday, as funds rushed to cover their bearish bets in the wake of stronger-than-expected U.S. economic growth numbers.

In other markets, arabica coffee for December delivery ended higher, up 0.2% to $1.243 a pound, cocoa for December fell 0.4% to $3,099 a ton, frozen concentrated orange juice for November fell 0.7% to $1.2905 a pound, and cotton for December ended flat at 63 cents a pound.