Sugar Prices Extend Surge as Rains Threaten Brazil Harvest
Category: Sugar
(Nasdaq) – Sugar prices surged Monday to their highest level in eight months, extending a two-month rally as coming rains in Brazil, the world’s largest producer, posed the potential to disrupt harvest season and crimp supplies.
Sugar futures rose 2.5% Monday to close at 14.64 cents a pound on the ICE Futures U.S. exchange, their highest settlement since Feb. 19. The market has rallied more than 40% since late August amid expectations of a possible supply deficit, in part because of weather disruptions from El Nino storm conditions this fall and winter. Financial speculators such as hedge funds have turned strongly bullish on the market, with bets on rising prices outnumbering so- called short trades by more than 3-to-1.
More recently, the momentum has come from expectations that rains could disrupt harvest and limit supply. Brazil is in the midst of its harvest season, and showers and thunderstorms are expected in growing regions Monday and Tuesday, and then returning Friday, according to forecaster Meteorlogix.
“The trend is moving higher, given the fact there’s been rainfall that’s begun to arrive in Brazil,” said Mike McDougall, head of the Brazil desk at Societe Generale.
Rainfall can also prompt processors to use sugar cane for ethanol production rather than raw sugar.
“Production (expectations) for sugar have dropped,” brokerage Price Futures Group said in a note. “Reports of lower production should continue to provide longer term support to the markets.”
Still, some analysts and traders say the rally in financial markets is getting overheated, and is beginning to uncouple from the realities of physical supply and demand.
“There needs to be reality behind it. It’s not sustainable,” said David Martin, managing member of hedge fund Martin Fund Management. “The physical market is well-supplied, and (buyers) don’t have a burning need to load up at this point.”
In other soft commodity markets, cocoa rose 1.6% to $3,174 a ton and coffee fell 1% to $1.1730 a pound. Cotton fell 1% to 62.13 cents a pound and orange juice fell 0.6% to $1.35 a pound.
