31/03 – Sugar `Crash´ Isn´t Over as Global Output Climbs, Analysts Say

31/03/10 – Sugar prices, heading for the biggest quarterly drop since 1985, will extend a slump as Brazil and India, the world´s largest producers, harvest bumper crops next season, analysts and traders said.
Raw sugar will fall 16 percent to 15 cents a pound by early July as the bulk of Brazilian supplies reach the market, said Marcelo Dorea, a partner at Round Earth Capital in New York. The price will tumble to 13 cents at the end of the year, posting a 52 percent annual loss, said Mark Hansen at CPM Group. Last year, the sweetener more than doubled.
“Sugar has transitioned from a bullish scenario to a bearish scenario,” said Dorea, who began trading agricultural commodities in 1981. “Investors should sell into rallies. The market may correct itself a little bit more, but there isn´t anything that would bring sugar up to the levels of the mid- 20s.”
Raw sugar tumbled as much as 47 percent from a 29-year high of 30.4 cents on Feb. 1, as importers including India, Pakistan and Egypt withdrew from the market. Yesterday on ICE Futures U.S., the contract for May delivery rose 0.37 cent, or 2.1 percent, to 17.88 cents. The commodity has tumbled 34 percent in the first quarter.
“It has basically been a price crash,” said Hansen at CPM, a New York-based research and asset-management company that structures hedges and trades for producers and consumers. “It´s not unreasonable to expect some kind of a bounce, but it´s unlikely to see sugar return to anywhere near” 27 cents, the level at the end of the year, he said.
Mills Open Early
Today, Brazilian sugar industry group Unica will issue its first output forecast for the Center South, which produces about 90 percent of the nation´s sweetener and ethanol.
Brazilian yields are beating forecasts as a waning El Nino brings dry weather, boosting prospects for a record harvest. Mills began crushing cane early after two years of heavy rains pared output, said Maurilio Biagi Filho, the world´s second- largest grower.
“I had never seen a single mill operating in January before,” Biagi said in an interview on March 24. “This January, we had 90 of them working at full capacity.”
The Indian Sugar Mills Association on March 25 estimated production in the year ending Sept. 30 will be 17 million tons, up 1.5 million from a February projection. Output next season may be as much as 24 million tons, the group said.
`Overestimated Deficit´
“The market had basically overestimated the extent of the deficit,” said Judith Ganes-Chase, a Katonah, a New York-based consultant. She forecast “single-digit” prices in 12 months, assuming favorable weather conditions.
The global supply shortfall will be 12.8 million tons this year, down from 14.8 million projected in February, Czarnikow Group Ltd. said on March 24, citing higher-than-expected output in India. The market will return to a surplus next year, according to London-based Czarnikow and Ratzeburg, Germany-based F.O. Licht.
“The unknown issue is the weather,” Round Earth´s Dorea said. “Last year, we were under this El Nino regime which is beginning to go away now. We´re moving to La Nina, which is typically better for crops in terms of rainfall distribution. In most cases, crops are going to be better and yields are going to be higher.”
The cyclical heating of the Pacific Ocean known as El Nino will continue to fade, U.S. forecasters said this month. The weather event, which occurs every four to seven years, brings more rain to South America and less precipitation to Asia.
In 2009, sugar soared partly because two straight years of drought damaged the Indian crop.
El Nino Weakens
A weakening El Nino is a “positive sign” for the monsoon, India´s main source of irrigation, Ajit Tyagi, a director general at the India Meteorological Department, said on March 18. “A repeat of last year is positively not going to happen.”
The sweetener will rebound in the second half as prices become “appealing enough to ramp up demand,” said Claudio Oliveira, a trader at New York-based Castlestone Management LLC., which manages $600 million, including sugar futures. The commodity may fall to 15 cents in three months, he said.
Hedge-fund managers and other large speculators reduced their net-long position in New York futures by 9.3 percent in the week ended March 23, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 155,463 contracts, down 15,890 contracts from a week earlier.
Net-longs have dropped 23 percent since Feb. 2, the day after sugar reached the highest level since January 1981. The bullish wagers were up 19 percent from a year ago.
“There´s still a very large speculative-long position in the market,” CPM´s Hansen said. “We need prices probably to fall further to see that washed out.”

31/03/10 – Sugar prices, heading for the biggest quarterly drop since 1985, will extend a slump as Brazil and India, the world´s largest producers, harvest bumper crops next season, analysts and traders said.
Raw sugar will fall 16 percent to 15 cents a pound by early July as the bulk of Brazilian supplies reach the market, said Marcelo Dorea, a partner at Round Earth Capital in New York. The price will tumble to 13 cents at the end of the year, posting a 52 percent annual loss, said Mark Hansen at CPM Group. Last year, the sweetener more than doubled.
“Sugar has transitioned from a bullish scenario to a bearish scenario,” said Dorea, who began trading agricultural commodities in 1981. “Investors should sell into rallies. The market may correct itself a little bit more, but there isn´t anything that would bring sugar up to the levels of the mid- 20s.”
Raw sugar tumbled as much as 47 percent from a 29-year high of 30.4 cents on Feb. 1, as importers including India, Pakistan and Egypt withdrew from the market. Yesterday on ICE Futures U.S., the contract for May delivery rose 0.37 cent, or 2.1 percent, to 17.88 cents. The commodity has tumbled 34 percent in the first quarter.
“It has basically been a price crash,” said Hansen at CPM, a New York-based research and asset-management company that structures hedges and trades for producers and consumers. “It´s not unreasonable to expect some kind of a bounce, but it´s unlikely to see sugar return to anywhere near” 27 cents, the level at the end of the year, he said.
Mills Open Early
Today, Brazilian sugar industry group Unica will issue its first output forecast for the Center South, which produces about 90 percent of the nation´s sweetener and ethanol.
Brazilian yields are beating forecasts as a waning El Nino brings dry weather, boosting prospects for a record harvest. Mills began crushing cane early after two years of heavy rains pared output, said Maurilio Biagi Filho, the world´s second- largest grower.
“I had never seen a single mill operating in January before,” Biagi said in an interview on March 24. “This January, we had 90 of them working at full capacity.”
The Indian Sugar Mills Association on March 25 estimated production in the year ending Sept. 30 will be 17 million tons, up 1.5 million from a February projection. Output next season may be as much as 24 million tons, the group said.
`Overestimated Deficit´
“The market had basically overestimated the extent of the deficit,” said Judith Ganes-Chase, a Katonah, a New York-based consultant. She forecast “single-digit” prices in 12 months, assuming favorable weather conditions.
The global supply shortfall will be 12.8 million tons this year, down from 14.8 million projected in February, Czarnikow Group Ltd. said on March 24, citing higher-than-expected output in India. The market will return to a surplus next year, according to London-based Czarnikow and Ratzeburg, Germany-based F.O. Licht.
“The unknown issue is the weather,” Round Earth´s Dorea said. “Last year, we were under this El Nino regime which is beginning to go away now. We´re moving to La Nina, which is typically better for crops in terms of rainfall distribution. In most cases, crops are going to be better and yields are going to be higher.”
The cyclical heating of the Pacific Ocean known as El Nino will continue to fade, U.S. forecasters said this month. The weather event, which occurs every four to seven years, brings more rain to South America and less precipitation to Asia.
In 2009, sugar soared partly because two straight years of drought damaged the Indian crop.
El Nino Weakens
A weakening El Nino is a “positive sign” for the monsoon, India´s main source of irrigation, Ajit Tyagi, a director general at the India Meteorological Department, said on March 18. “A repeat of last year is positively not going to happen.”
The sweetener will rebound in the second half as prices become “appealing enough to ramp up demand,” said Claudio Oliveira, a trader at New York-based Castlestone Management LLC., which manages $600 million, including sugar futures. The commodity may fall to 15 cents in three months, he said.
Hedge-fund managers and other large speculators reduced their net-long position in New York futures by 9.3 percent in the week ended March 23, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 155,463 contracts, down 15,890 contracts from a week earlier.
Net-longs have dropped 23 percent since Feb. 2, the day after sugar reached the highest level since January 1981. The bullish wagers were up 19 percent from a year ago.
“There´s still a very large speculative-long position in the market,” CPM´s Hansen said. “We need prices probably to fall further to see that washed out.”