Sugar Prices Rally To One-Month High

(Nasdaq) – Sugar prices rallied to their highest in a month Thursday as trade houses bought up sugar at discount prices in an anticipation of higher prices on the horizon as production slows.

Raw sugar for October delivery jumped 5.7% to end at 11.34 cents a pound, the highest since July 29 and their biggest one-day rally since Sept. 22, 2014.

“Consensus is that prices are due to rally a bit,” said Robin Shaw, analyst at Marex Spectron. “We are entering a bit of a deficit.”

Mr. Shaw said he is bullish on sugar prices. When prices were high in 2011, producing countries planted too much sugarcane, he said, and paid for it with five years of low prices. Since cane grows in a five-year cycle, Mr. Shaw said, it is taking some time for that surplus production to slow down as some farmers choose not to continue to invest in their fields.

A dramatic depreciation in the Brazilian real against the dollar has capped rallies as sugar producers in Brazil, the largest producer in the world, have an incentive to pump out and sell more sugar even when prices are low to take advantage of favorable exchange rates that increase repatriated profits.

Still, analysts including the International Sugar Organization are predicting that consumption will outstrip production in the year beginning in October for the first time in five years. During the sugar rush, more than 25 million tons of sugar were added to world stocks, the ISO said. The organization said world production next year is expected to drop 1.1% year-over-year to 170.9 million tons, while world consumption is expected to grow 2.4% to 173.4 million tons.

While no shortages in physical sugar supply are anticipated until the world works through its stockpiles, it is unclear how available those stockpiles are, and some sugar traders are betting on prices rising.

Price Futures Group said in a note that sellers aren’t willing to push the market lower despite negative macro forces, in part because Thailand and India have seen some drought in production areas that could further harm production.

In other markets, arabica coffee for December rose 1% to end at $1.1955 a pound, cocoa for October fell 0.1% to close at $3,114 a ton, cotton for December ended up 0.4% at 63.04 a pound, and frozen concentrated orange juice futures fell 0.7% to end at $1.2865 a pound.