Sugar Rally Continues Amid Production Concerns

September 20th, 2016


Category: Sugar

different types of sugar - brown, white and refined sugar(Nasdaq) – Raw-sugar futures continued its upward march Monday as some traders were forced to liquidate their bearish bets to cover the margin calls after the market posted the biggest one-day price increase in four years on Friday.

Sugar for March delivery soared 4.5% to settle at 22.75 cents a pound on the ICE Futures U.S. exchange, the highest price level for the most active contract since July of 2012.

Friday’s massive price move triggered further short coverings in the market, as brokers issued margin calls to losing accounts on Monday. “The trade of origin,” or producers, “are holding substantial shorts, so we have to think perhaps there’re some short covering,” which would be supportive to prices, said Michael McDougall, director of commodities at Societe Generale.

Brazil-based Archer Consulting estimated that a total of $300 million worth of margin calls would be issued to ” trading companies, as well as the suppliers of structured OTC operations.”

Societe Generale noted that the front-end October contract started Monday a record open interest of 133,999 contracts. With nine trading days left in the contract, analysts and traders were guessing how many contracts will be carried into physical delivery.

Some traders might choose to roll into the March contract to pocket the gains from the October/March spread, which will cause some selling pressure in the October contract, said Nick Gentile, a principal at Nickjen Capital.

Money managers, hedge funds and other speculators in the sugar market have been poised in a heavily bullish stance for much of the year, with the bulls outweighing the bears by 247,798 contracts as of Tuesday, according to the U.S. Commodity Futures Trading Commission.

Sugar’s latest price move was fueled by the production figures released last week by Brazil’s industry group Unica, which showed less sugar was produced in the second half of August than what people had expected. In addition, yields had dropped dramatically over the last two weeks, raising concerns over the overall production in Brazil.

In addition, market participants also grew more worried about India’s sugar production as the rainfall there was not as good as people had thought. Many analysts now expect India to turn into a net importer of raw sugar later this year.

In other markets, frozen concentrated orange juice for November was up 1.1% to settle at $1.9890 a pound. Arabica coffee for December gained 3% to close at $1.528 a pound. Cocoa for December was up 2.5% to end at $2,872 a ton and December cotton gained 1.8% to settle at 68.50 cents a pound.

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