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
'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
'Problems with plant
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,"
"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.
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.