Sugar prices hit new 22-month high, as Brazil sees wet weather outlook

(AgriMoney) – Sugar climbed to new 22-month highs in overnight trading, as funds keep piling into the market, helped by supportive fundamentals.

The market was helped by data from the US Commodity Futures Trading Commission, which showed a slight pull back in fund buying over the weak to last Tuesday.

Managed money, a proxy for speculators, trimmed its net long position in futures and options in New York sugar by 3,761 lots, which was admittedly only a small step back given the record net-long revealed a week earlier.

And the price rally since last Tuesday will surely have added more longs.

Still, Mr Penney said that the fund position revealed in the CFTC was slightly less smaller than expected.

This is bullish as markets tend to assume that there is only so far fund buying can drive prices up.

Tighter supplies

Robin Shaw, sugar analyst at Marex Spectron, reported that bullish investors are buying on ideas of tighter world supplies.

Mr Shaw noted that “scary bull story” among investors was based on the ideas that world sugar stocks were much smaller, and less available, than previously thought, with most inventories tied up in China, and other sugar importers who are unlikely to release them.

This leaves a market that could get very tight very quickly, if production falls behind supply, as is widely expected.

But he stressed that at the moment, it appears to be fund buying, rather than any tightening of the market, that is driving prices higher.

And as funds do not consumer sugar, and will eventually have to sell, while producers can and do remain short on the market forever, he

“So we tend to stick to our mantra that sugar cannot sustain a rally for a long time unless the physicals ‘prove’ that sugar is tight,” he said.

Deficit or funds?

Commerzbank saw market fundamentals driving the rally.

“It is still the deficits anticipated for this season and the next that are driving up the price,” Commerzbank said.

Still the bank agreed speculative buying is also in play.

“The upswing has been finding support from short-term-oriented market participants, who have sharply increased their net long positions”

Weather fears

Weather across the cane belt of Brazil, the world’s top sugar producer is now expected to be rainy for at least the next couple of weeks.

This will not only disrupt cane cutting, and reduce the yield of sugar, but will also disrupt shipping from the country’s southern ports.

This could be particularly bullish given that Brazil is single-handedly propping up global sugar output this year, as Asian producers see sharply reduced prospects due to drought in the wake of the 2016-17 El Nino.

Crush data to come

The Brazilian cane body Unica is expected to report crushing activity for the first half of May on Tuesday.

Sugar production and cane crushing numbers are expected to be hefty, but markets are increasingly looking forward to next month’s production.

“We might see a dip in values as a result,” said Mr Penney, but he said that May production “may already be in the price and the markets recent reaction is as a result of anticipating the change of weather in June”.

July raw sugar futures were up 0.6%, at a 22-month high of 17.63 a pound as New York markets opened.