Sugar Prices Higher On Lower Production

(Nasdaq) – Sugar prices surged higher Monday as traders eyed a disrupted harvest in Brazil and lower production in India.

Raw sugar for March delivery rose 2% to 13.53 cents a pound, on track for its highest close May 12 and its fourth straight session of gains.

Sugar prices have risen 30% since dropping to a seven-year-low on Aug. 24, driven down by a weakening Brazilian real against the dollar. Morgan Stanley said in a note Monday that the real’s influence on sugar prices is waning as traders eye the first season in six years in which consumption is expected to outstrip demand. The firm said it expects consumption to top demand by 3.7 million metric tons in the year that began Oct. 1, making it among the more bullish estimates thus far. Trading firms and other forecasts have estimated a production surplus this year of between 1.7 million and 4.1 million metric tons.

In Brazil, the world’s largest sugar grower, sugar cane processed this season has dropped 2.1% to 412,624 million tons, according to the International Sugar Organization, and sugar output is down 11% year-over-year as mills have been converting more cane to ethanol. Heavy rains are expected to extend the harvesting season there well beyond its usual end in December, the organization said.

At the same time, traders are focused on an expected drop in sugar production out of India, the second largest producer of sugar from cane. Commerzbank said in a note that the Indian Sugar Mills Association is predicting production to drop 5% this year to 28.3 million tons because of insufficient rainfall, with rains down 14% from normal because of the El Nino weather phenomenon.

“In summary, the deficit is probably here to stay for at least a couple of years and production will only increase substantially if the price moves high enough to encourage it,” Marex Spectron said in a note.

Investors are turning bullish on the beaten down sugar market. As of Tuesday, investors betting on higher prices outweighed bearish investors by 23,452 contracts. It is only the third time this year that the bulls have outweighed the bears and it is the highest net bullish position for the market since July 22, 2014.

In other markets, arabica coffee for December rose 2.9% to $1.279 a pound, December cocoa was up 0.2% to $3,102 a ton, cotton for December delivery rose 1.3% 60.91 cents a pound and frozen concentrated orange juice for November delivery jumped 1.9% to $1.073 a pound.