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Buyers of sugar from Brazil, the world’s largest producer, are paying a smaller premium for the sweetener as the lack of buying and the rally in futures prices stalled demand, according to Swiss Sugar Brokers.
Raw sugar for loading in August at the port of Santos, Brazil’s biggest, was trading at a premium of 0.11 cent a pound to the price of the October contract on ICE Futures U.S. in New York, the broker said in a report e-mailed today. That compares with a premium of 0.4 cent a pound on July 10, data from the broker showed. Sugar futures in New York climbed 8.2 percent last month as rainfall delayed the harvest in Brazil.
“The absence of demand from destination coupled with the flat price spike and the flow of sugar to the terminals are the main cause of the cash values decline,” Naim Beydoun, a broker at the company, wrote in the report. He was referring to rally in sugar futures that attracted the sweetener to be delivered against the July contract on the exchange.
Cargill Inc., Copersucar SA and ED&F Man Holdings Ltd. took delivery of about 1.1 million tons of sugar when the July contract expired in New York. That was the biggest delivery on the exchange since 2009, ICE data showed. Most of the sugar will be loaded at the port of Paranagua, Brazil’s second-biggest.
While futures prices have rallied, premiums in the cash market have declined, suggesting the market is not trading on the basis of supply and demand fundamentals, Beydoun said. Sugar production is set to be 10.2 million metric tons bigger than consumption in the 2011-12 season that started in October, according to Kingsman SA. A surplus of 9.3 million tons is forecast for 2012-13, the broker and researcher estimates.
Futures traders appear to be “trading corn and soya, trading El Nino, trading back the May and June rains in center south Brazil, and of course trading the speculators money,” Beydoun said. “The sugar market might need a time machine vehicle to ride us back to fundamentals.”
Raw sugar for October delivery was 0.9 percent up at 23.15 cents a pound by 5 a.m. in New York.
To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.