Commodity Blog

Commodity Prices – Sugar

Sugar gained today for the fourth consecutive session on the speculation that production will fall, while demand continues to grow. According to Unica, the Brazilian Sugarcane Industry Association, the total amount of cane processed since the beginning of this year’s harvest in Brazil was 56.66 million tons as of May 15, 39.51 percent below 93.67 million tons for the same period in the previous year. The European Union and Mexico raised their import allowances this week. July delivery for raw sugar gained $0.0018 (0.8 percent) to $0.2287 per pound as of 9:52 on ICE.

Gold and silver advanced today as the dollar fell, increasing demand for commodities as alternative assets. The greenback slid 0.8 percent against the basket of six major currencies. The Thomson Reuters/Jefferies CRB Index of 19 raw materials headed for the third consecutive weekly gain. August contract for delivery of gold went up $9.70 (0.6 percent) to $1,533.50 by 10:41 on COMEX. July delivery for silver added $0.565 (1.5 percent) to $37.895 per ounce.

Sugar prices fell to the lowest level since September as specialists forecast that exports from Thailand, second biggest shipper in the world, will increase. Cocoa and coffee also fell.

Thailand may export 7 million metric tons of sugar this season, and that would be a record. Analysts are afraid that surge of exports can create oversupply on the global markets.

At the same time, demand for the sweetener may decline as Asian countries are expected to slow their economic growth. India and Brazil signaled that they are considering another round of interest rate increases, while China continues its attempts to rein the rapidly growing inflation.

July for raw sugar delivery fell as much as $0.007 (3.2 percent) to $0.2135 per pound by 14:00 on ICE, following the drop to $0.2133, the lowest price since Sept. 10. Futures on raw sugar lost 34 percent this year.

July contract for cocoa delivery slipped $60 (1.8 percent) to $3,211 per metric ton at 11:58. Futures on Arabica coffee for delivery in July dropped $0.1165 (3.8 percent) to $2.945 per pound.

Sugar continued this week’s decline with another bearish day today, as the industry specialists commented that the commodity price is capped at no more than $25 per 100 pounds.

Thailand, the world’s second biggest sugar producer after Brazil, increased its annual output by 37 percent. Meanwhile, Goldman Sachs forecasts that the price for sugar will reach $20 per 100 pounds during the next 6 months, compared to the February all-time high of $36.08 per 100 pounds.

This soft commodity was a major hit until February this year and is in a constant downtrend since that time, contributing to a monthly decline of food prices globally. Cheaper sugar is also a perfect stimulus for the food companies such as the US based Kraft Foods Inc. and Swiss Nestle SA to increase production, while the former had previously lowered profit forecasts due to the elevated commodity prices.

Sugar futures with delivery in May is now trading near $23.68 per 100 pounds as of 15:17 GMT on ICE, down from $24.39 or almost 3%.

Corn and soybeans advanced on the forecast that the cold, wet weather in the US will diminish harvest. The area from central Arkansas to Detroit will probably receive 20 centimeters of rain over the next 10 days, according to Tim Bowden, a senior meteorologist at Planalytics Inc. Field from Nebraska to northern Indiana will get 10 centimeters of rain. July futures for corn delivery gained $0.04 (0.5 percent) to $7.445 per bushel as of 13:15 on CBoT. July futures for soybean delivery rose $0.205 (1.5 percent) to $13.8975 per bushel.

Expectations of bad weather and increasing demand in Brazil spurred sugar. Frosts may damage crops as El Nina weather pattern weakened. Brazil increased usage of sugar in ethanol production. July contract for raw sugar delivery advanced as much as $0.0027 (1.1 percent) to $0.238 by 14:00 on ICE.

Sugar declined on the speculation that production will increase in Brazil and India. Fain Shaffer, the president of Infinity Trading Corp., said that the prices may fall even lower if prospect for the crops.

The Indian government said that the country is planning to export 500,000 metric tons of sugar this week. India’s DCM Shriram Consolidated Ltd. predicted that its sugar production may rise 58 percent this season. Research company Datagro forecast that output in Brazil’s Center South will advance from 33.5 million metric tons in 2010 to 35.1 million tons in 2011.

May delivery for raw sugar dropped $0.0102 (3.6 percent) to $0.2736 per pound by 14:00 on ICE. The prices reached $0.3608 on February 2, the highest level since November 1980. In London, May futures for delivery of refined sugar declined $16.40 (2.3 percent) to $702.60 per ton on NYSE Liffe.

Sugar rallied today on the speculation that output will trail consumption, causing a global deficit. Production in India, the second biggest grower after Brazil, may be lower than previously predicted. Balrampur, India’s second-largest sugar company, estimated that production in India in the year ending September 30 will be 24.5 million metric tons, compared to the November forecast of 25 million tons.

Australia, the third biggest exporter, will also have reduced output as the crops were harmed by adverse weather. Rabobank estimated that the next harvest will produce 3.5 million metric tons. That’s compared to the previous harvest of 3.6 million tons and the earlier forecast of 4.2 million for the next harvest.

March delivery for raw sugar rose $0.0041 (1.3 percent) to $0.3305 per pound by 11:17 on ICE. May futures for delivery of refined sugar advanced $11.20 (1.5 percent) to $780.70 per metric ton on NYSE.

Computer programs exaggerated the sell-of of sugar futures that started on the news about the cyclone in Australia, sending sugar prices down 9.3 percent. The speculation that Cyclone Yasi will damage crops in Australia caused selling of futures on sugar that triggered a cascade of computerized “stop losses” (orders to sell). Meanwhile, the cyclone was downgraded from a Category 5 to a Category 2, reducing its potential influence on the output.

A new method of executing prearranged buy and sell orders was scheduled to be implemented at ICE on January 25, but the implementation of the method was delayed and will be announced after “consultation with market participants”. This method should prevent a ”cascading stop effect”. As for the current situation with the wave of sell orders, ICE isn’t planning cancellation of orders as ”trades were executed within reasonability limits and outside the threshold for trade cancellation”.

Jeff Bauml, a senior vice president at R.J. O’Brien & Associates, a broker in New York, said that “today’s fall is basically computer trading at its worst”.

March contract for delivery of raw sugar dropped as much as $0.0327 to $0.3204 per pound as of 14:00 on ICE, the biggest slump after a decline by 10 percent on December 30.

Crude oil reached the highest level in more than two years after a report showed that US inventories of crude declined more than expected. The inventories dropped 5.33 million barrels to 340.7 million last week, while a 3.4 million-barrel decline was predicted. February delivery for crude oil gained $0.66 (0.7 percent) to $90.48 per barrel on NYMEX, the highest level since October 3rd, 2008.

Sugar gained today on speculation that India may delay new exports. India’s government will review its export policy at the end of January. March delivery for raw sugar climbed $0.0011 (0.3 percent) to $0.3313 by 14:00 on ICE.

Cotton dropped by the exchange limit on ICE today on speculation that demand may wane after prices rallied to a record. March futures for cotton delivery slipped as much as $0.05 (3.1 percent) to $1.5412 per pound as of 14:36 in New York. The price reached a record of $1.5912 yesterday.

Crude oil jumped to the highest level in two years after same-store sales in the US rose 4.2 percent last week. Oil also advanced as the Standard & Poor’s 500 Index went up. February delivery for crude oil rose $0.45 to $89.82 per barrel on NYMEX, the highest level since October 7th, 2008.

Concerns about tighter supply from Brazil boosted sugar prices. Adverse weather in Brazil helped the prices to jump 23 percent this year. March delivery for raw sugar gained $0.0006 (0.2 percent) to $0.3302 per pound by 13:46 on ICE.

Coffee futures also continued the rally to the 13-year record on speculation that adverse weather in Brazil and India may curb supplies. Commodities, including coffee, also gained on a weaker dollar. March delivery for Arabica coffee advanced $0.092 (4.1 percent) to $2.3385 per pound as of 14:00 ICE.

Sugar advanced today to the highest level in 29 years on forecast that global supplies will trail demand. World sugar consumption will exceed production by almost 3 million metric tons in the year ending September 30th. March delivery for raw sugar advanced $0.0046 (1.4 percent) to $0.3296 per pound as of 14:00 on ICE.

Crude oil gained today on signs that US economy recovers, increasing demand in the biggest oil-consuming country. Experts predict a report this week will show that growth of US gross domestic product accelerated. January delivery for crude oil gained $0.79 to $88.81 per barrel on NYMEX.

Cotton was also bolstered by an anticipation of increasing demand in the US. The Thomson Reuters/Jefferies CRB Index of 19 raw materials jumped to the highest level in more than two years. March futures for cotton delivery rose $0.04 (2.7 percent to the record $1.5412 per pound by 14:43 on ICE.