Sugar traders are the most bearish in nine weeks and hedge funds are making their biggest ever bet on lower prices on mounting concern that record supply from Brazil will extend a global glut.
Seven analysts surveyed by Bloomberg expect prices to fall next week, three forecast gains and two were neutral, making the proportion of bears the highest since Feb. 8. The sweetener slid to a 2 1/2-year low of 17.47 cents a pound on April 3 and speculators have been betting on a decline since Jan. 22, U.S. Commodity Futures Trading Commission data show.
Supply of the commodity, which tumbled into a bear market in September, is outpacing demand for a third year, Rabobank International estimates. Output in the main growing region of Brazil, the biggest exporter, will reach an all-time high in the season that began this month, the government predicts. Morgan Stanley raised its surplus estimate by 31 percent on April 8 partly on rising output in India, the second-biggest producer.
“The world doesn’t need any more sugar, and the surplus for this season has got bigger,” said Kona Haque, an analyst at Macquarie Group Ltd. in London who expects a drop toward 17 cents in the next three months. “Prices will need to fall more to send the signals for Brazilian millers to make less sugar and focus on ethanol,” which is also derived from cane.
Raw sugar fell 8.6 percent to 17.84 cents on the ICE Futures U.S. exchange in New York this year, extending two years of declines. A third year of losses would be the worst run since 1992. The Standard & Poor’s GSCI index of 24 commodities lost 3.6 percent since the start of January, and the MSCI All-Country World Index of equities rose 7.1 percent. Treasuries returned 0.2 percent, a Bank of America Corp. index (MXWD) shows.
Sugar closed more than 20 percent below its July 20 peak on Sept. 5, the common definition of a bear market, and fell another 6.2 percent since then. Hedge funds had a net-short position of 79,070 futures and options as of April 2, the most according to CFTC data going back to June 2006. They were net- long by as much as 129,999 contracts in July.
The size of the net-short position may cause prices to rally should there be a change in the outlook for supply or demand because it would spur speculators to close out their holdings by buying contracts, Macquarie’s Haque said. The bank raised its forecast for the surplus to about 10 million metric tons this month, from a February estimate of 8.5 million tons.
Production in Brazil’s center south will be a record 39.2 million tons this season, the government said April 9. That’s higher than the 34 million to 35.2 million tons forecast by a Bloomberg survey of six mill owners that make up about a third of the area’s supply.
Rabobank already expects this year’s glut will reach 8.53 million tons, with stockpiles accounting for 43 percent of world usage, the highest level in five years. Mexico and Thailand will also produce more than previously forecast, according to Mexican industry group Conadesuca and broker Marex Spectron Group.
Mexico will produce a record 6.2 million tons of sugar in the 2012-13 season, Isaac Cain Lascano, deputy director of trade policy at industry group Conadesuca, said by phone on March 11. That’s up from a November forecast of 5.7 million tons.
Thailand’s sugar production will be “just under” 10 million tons in 2012-13, Marex Spectron said in a report on April 8. That’s up from a forecast of 9.2 million tons a month ago, Paul Bannister, head of sugar brokerage at the company, said.
“With the start of the new center south Brazil crop upon us, the bigger Thai and Indian crops, buyers are now much more likely to hold back and wait as prices fall,” said Tom McNeill, a director at Green Pool Commodity Specialists Pty. in Brisbane.
There are signs demand may increase before the start of the Muslim holy month of Ramadan in July. While people fast during daylight hours, sweet treats are common at night. Premiums being paid to secure raw sugar in Thailand are their highest since August because so much is being refined for exports before Ramadan, German researcher F.O. Licht said in an April 4 report.
Egypt’s state-run Sugar and Integrated Industries Co. bought 50,000 tons of raw sugar, the first purchase since September, an official at the company said earlier this week. Iraq is also tendering for 50,000 tons, the Trade Ministry said April 10.
Declining sugar prices and rising ethanol returns may spur more millers to favor biofuel production. The price of hydrous ethanol, the pure biofuel used in flex fuel cars in Brazil, is 20.6 cents a pound, said Patricia Luis-Manso, an analyst at researcher Kingsman SA. That’s 15 percent more than raw sugar futures today on ICE. Center-south millers will direct 46.5 percent of the sugar cane harvested to making sweetener, down from 49.5 percent last year, Kingsman estimates.
Rain in Brazil’s center south is delaying the start of the crop, and may result in millers making even more biofuel at the start of the season, Luis-Manso said from Lausanne, Switzerland. There may not be enough time to process all the cane, she said.
Cosan SA Industria & Comercio (CSAN3), which shares control of the world’s biggest sugarcane processor with Royal Dutch Shell Plc (RDSA), said Feb. 6 that fourth-quarter profit rose as it expanded into energy. The company’s shares gained 4.4 percent in Sao Paulo this year, reaching a more than six-year high March 5.
In other commodities, 16 of 29 people surveyed anticipate higher corn prices next week and 11 said the grain will drop, while 13 of 30 said soybeans will rise and 12 expect a decline. Twelve of 26 traders predicted higher wheat prices and the same number were bearish. Corn slid 8.2 percent to $6.4125 a bushel this year as soybeans lost 2.2 percent to $13.7925 a bushel in Chicago. Wheat is down 7.5 percent at $7.195 a bushel.
Seven of those surveyed said copper will slide next week, four predicted gains and three were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, fell 6.6 percent to $7,406.50 a ton this year.
Fourteen of 31 traders surveyed said gold would decline next week and 11 were bullish. Bullion slid 11 percent to $1,487.96 an ounce in London since the start of January, after climbing for a 12th consecutive year in 2012 as nations pledged more stimulus to bolster economic growth. Investors have cut holdings in exchange-traded products to the lowest since August, data compiled by Bloomberg show.
Minutes of the Federal Reserve’s March meeting released April 10 showed several members were in favor of pulling back on its $85 billion monthly debt-buying program this year. That compares with Bank of Japan (8301) policy makers who said April 4 they would boost monthly debt purchases. The International Monetary Fund is predicting global growth of 3.5 percent in 2013, from 3.2 percent in 2012. The S&P GSCI gauge of raw materials reached a five-month low on April 5.
“From a commodity perspective the state of the economy is much more important than money printing,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm. “Gold is likely to drift lower on better macro conditions in spite of quantitative easing. In general, we expect commodity prices to print their year lows in the second quarter.”
Gold survey results: Bullish: 11 Bearish: 14 Hold: 6 Copper survey results: Bullish: 4 Bearish: 7 Hold: 3 Corn survey results: Bullish: 16 Bearish: 11 Hold: 2 Soybean survey results: Bullish: 13 Bearish: 12 Hold: 5 Wheat survey results: Bullish: 12 Bearish: 12 Hold: 2 Raw sugar survey results: Bullish: 3 Bearish: 7 Hold: 2 White sugar survey results: Bullish: 4 Bearish: 6 Hold: 2 White sugar premium results: Widen: 2 Narrow: 4 Neutral: 6
To contact the reporters on this story: Nicholas Larkin in London at firstname.lastname@example.org; Isis Almeida in London at email@example.com
To contact the editor responsible for this story: Claudia Carpenter at firstname.lastname@example.org