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Sugar prices edge up amid fears for speculators
Sugar prices extended their revival on Monday amid ideas that the extent of hedge funds' short holdings in futures had reached such a level that the sweetener was vulnerable to spiking higher on position closing.

New York's March sugar contract closed up 2.1% at 19.75 cents a pound as of 11:30 UK time (06:30 New York time), taking above 5% its revival from a two-year low for a spot contract reached three weeks ago.

The upward move followed data showing that non-commercial investors overall had raised their net short position in raw sugar futures and options above 50,000 lots, taking it to the highest  - ie signalling the most bearish positioning - since August 2007.

While managed money, a proxy for speculators, retained a net long position meaning long bets, which profit when prices rise, outnumbered short ones, which benefit when values fall they reduced it to a little under 10,500 lots, also the lowest since 2007.

The total level of short positions reached a historically-large 118,943 contracts.

'Susceptible to a bounce'

Investors' positioning reflects ideas of a strong world surplus in 2012-13, which Rabobank last week pegged at 5.9m tonnes, thanks largely to a recovery in output in Brazil, the top producer.

Speculators' net longs in grains and oilseeds, Nov 27, (change on week)

Chicago corn: 247,087, (+6,859)

Chicago soybeans: 108,561 (-4,229)

Chicago wheat: 43,223, (+11,173)

Kansas wheat: 40,218, (-513)

Chicago soymeal: 23,715, (-3,811)

Chicago soyoil: -49,155, (+4,266)

Sources: Agrimoney.com, CFTC

"Comfortable supplies in major exporting regions, including Brazil and Thailand, continue to remain a fundamental drag on global sugar values," Luke Mathews at Commonwealth Bank of Australia noted.

In Thailand, the second-ranked exporter behind Brazil, the cane crush which started two weeks ago "has started favourably with sugar output up 18% year on year".

However, the sugar market retains the "positive" factor of the "extremely large quantity of short positions held by speculative investors".

The makes "the market remains susceptible to a short-covering bounce", Mr Mathews said.

Likely catalysts for such a mass closing of short positions could be macroeconomic, or a weather setback to a major producing country, or a move by Brazil to boost production of ethanol, which competes with sugar for cane.

'Problems with plant diseases'

The positioning by sugar investors came in a weekly report from the Commodity Futures Trading Commission, the US regulator, which showed speculators taking a more positive attitude towards other soft commodities.

Speculators' net longs in New York softs, Nov 27, (change on week)

Cocoa: 38,073, (+4,010)

Raw sugar: 10,497, (-8,458)

Cotton: -9,862, (+2,660)

Coffee: -25,916, (+1,005)

Sources: Agrimoney.com, CFTC

In coffee, they trimmed their record net short position by 1,005 contracts to a little under 26,000 lots, while the net short in cotton was reduced by 2,660 lots.

In cocoa, managed money raised its net long position by more than 4,000 contracts to 38,073 lots, the highest in more than two years, amid ideas that demand will pick-up at a time of some production challenges.

"The main harvests that are currently underway in Ivory Coast and Ghana have got off to a weaker start than they did last year," Commerzbank said.

"Following excessive rainfall, both countries are reporting problems with plant diseases."

The bank also clocked an International Cocoa Organization concerns for Indonesian output of the bean "on account of the poor condition of cocoa trees and the tough competition from palm oil" for land.

Soyoil rebound

Among grains and oilseeds, speculators increased their net long in Chicago wheat for the first time in five weeks, while continuing to reduce their exposure to higher prices of Kansas hard red winter wheat contracts, despite the problems facing crops in the US Plains.

In Chicago corn, managed money raised its net long position too, if keeping it well below the August high above 340,000 contracts.

However, speculators continued to run down their net long position in soybeans, cutting it below 109,000 contracts for the first time since February, while turning more positive on soyoil for the first time in nearly three months.

The US has scooped a spree of soyoil export orders, thanks to the price of its supplies falling below those of higher-ranked exporters Argentina and Brazil, which suffered drought-reduced soybean harvests earlier this year.

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