Sugar futures took their gains in two sessions above 5% as
weak data on Indian monsoon added to concerns over a Brazilian ethanol change
to question ideas of ample supplies of the sweetener.
Raw sugar for July jumped 2.3% to $17.94 cents a pound in midday
deals in New York, its highest in nearly a month, taking gains in two sessions
The October contract, which now attracts higher trading
volumes, gained 1.9% to a one-month high of 18.69 cents a pound.
The peaks followed the release of data showing India's
monsoon continuing to run late, and deposit disappointing levels of rain,
during its early stages, raising concerns over crops including sugar cane.
'Reason to add back
India's monsoon rains were, in the week to Wednesday, 45%
below average, only a small improvement on the 48% deficit the week before,
weather officials said, estimating that the weather pattern was running four
days behind schedule too.
"It has been a reason to add back a bit of the risk premium,"
soft commodities analyst in London said, if noting that strong water levels in
irrigation systems were reducing concerns over the late monsoon for now.
At Citigroup in Chicago, Sterling Smith said that "there is
an issue with the monsoon in India," the second ranked sugar producing country
after Brazil, and the top consumer.
"It is likely giving the funds cause to cover their short
However, other reasons too were cited as behind the rally,
with the London analyst noting that the "vessel line-up in Brazil and has
picked up a little bit compared with last month", indicating a potential
squeeze on the country's exports.
This may only get more acute if the El Nino– which often
causes a weak monsoon – arrives as expected, with the weather pattern also
linked in Brazil to heavy rains, which can hamper loading of sugar cargoes,
which are damaged by water, in all but roofed facilities.
In fact, the US Climate Prediction Center forecast an 80%
chance of declaring an El Nino in the autumn, with one key indicator, the weekly
sea surface temperature departure in a key part of the Pacific, 0.4 degrees
Celsius above average - 0.1 degrees below the El Nino threshold.
Citigroup's Mr Smith also cited talk of an agreement between
Brazilian authorities and vehicle makers to raise by 1 point to 26% the
proportion of ethanol blended into gasoline in the South American country.
"That means more cane going for making ethanol and less for
sugar, which should make sugar prices go up," Mr Smith said.
Sucden Financial estimated at 575,000 tonnes the amount of
sugar production that will be lost to enable the increase in output of ethanol,
of the anhydrous variety which can be mixed with gasoline.
That said, the agreement "is not what the millers were
hoping for", Sucden added, noting that cane industry group Unica, and oil giant
Petrobas, were pressing for a 27.5% blend rate.
The Anafavea carmakers' association opposed this level on
grounds that it may cause difficulties starting engines.