Sugar Futures Continue Downward Slide
Sugar futures continued their downward slide as traders rushed for the exits following a trading house’s forecast for record sugar output next year.
Raw sugar for March delivery dropped 2.9% to 18.07 cents a pound on the ICE Futures U.S. exchange, the lowest price for the most active contract since early June. Sugar has so far plunged more than 20% in price from its most recent high reached Oct. 5, technically entering a bear market.
“Following two years of deficit, this looks set to result in a surplus of 1 million tons,” wrote analysts with Commerzbank in a Wednesday note.
Sugar production in Brazil, the world’s largest producer and exporter, has soared during the current season. Industry group Unica said Wednesday that the country’s center-south mills produced 1.1 million tons of sugar, up 61%, during the second half of November.
Brazilian mills have directed more cane production to sugar, instead of ethanol. The production mix for the second half of last month was 47.3% sugar to 52.7% ethanol. A year earlier, the mix was 33.1% sugar and 66.9% ethanol.
The selloff has also fed on itself, as sugar prices dropped below some technically important levels, sparking further selling.
Also, the Federal Reserve is expected to hike interest rates later Wednesday as it concludes its two-day policy meeting, a move that could further raise the expectations for higher rates going forward in the U.S. With the recent rate cuts in Brazil, the real is likely to weaken against the dollar and encourage more sugar producers to hedge their production.
“It’s not looking potentially that good for the sugar bulls,” wrote Tom Kujawa, co-head of softs department at Sucden Financial Ltd.
The sugar market is still heavily long, with the bulls outweighing the bears by 174,459 contracts as of last Tuesday, according to U.S. Commodity Futures Trading Commission data.
In other markets, cocoa for March rose 0.8% to $2,309 a ton, arabica coffee for March was down 0.3% to $1.4245 a pound, frozen concentrated orange juice futures for January lost 0.5% to $2.0120 a pound and March cotton was up 0.1% to 72.09 cents a pound.