Linked In
News In
Linked In

You are viewing 1 of your 2 complimentary articles.

Register now to receive full access.

Already registered?

Login | Join us now

Macquarie offers sugar price bulls some solace

Twitter Linkedin eCard

The extent of speculators' short bets in sugar derivatives, plus potential price boosts from ethanol, the Brazilian real and Indian setbacks, prompted Macquarie to offer solace to sugar bulls even as futures renewed their decline.

The bank restated its forecast that New York raw sugar futures will average 17.5 cent a pound in the April-to-June period, a performance which would make the quarter the weakest in three years.

However, it cautioned that there were factors, "that warrant close inspection… which could provide bullish surprises" to prices, which fell to 17.87 cents a pound in New York two weeks ago, the lowest, on a front contract basis, since August 2010.

Macquarie analyst Kona Haque said: "It is always slightly worrying when everyone is of the same view," that prices will trend lower.

Market floor?

One potential stimulus for higher prices is the record net short position, of 57,000 contracts, which managed money, a proxy for speculators, has built up in New York raw sugar futures and options.

"As futures prices start to fall lower to 17 cents a pound, as we expect into mid-year, then funds may find themselves unwilling to maintain further short exposure," Ms Haque said.

The market is "expecting Brazilian mills to switch to ethanol production, should prices hover at the 17 cents-a-pound mark for too long, and it is also aware that these prices are likely to deter most producers around the world from investing in further expansion".

At such low prices, "risks are more likely to be on the upside, rather than downside – and funds may want to start covering their shorts", a shift which would support prices.

Brazil, India factors

On fundamentals, Indian output could disappoint undermined in 2012-13 by the impact of drought in some regions, and next season by a change by farmers to growing alternative crops.

"Despite another decent hike in the statutory cane prices, farmers in Maharashtra, Karnataka and Tamil Nadu could lower plantings or switch to other crops," Ms Haque said.

And Brazil could provide support by a strengthening of the real, which would make the country's exports more expensive in dollar terms, besides by a change by mills to turning cane into ethanol rather than sweeteners.

Macquarie said it saw Brazil's mills turning 54% of cane into ethanol, compared with a little over 50% in 2012-13, to provide biofuel for domestic mandates for blending into gasoline, and ship to the US, besides being encouraged by port delays to switch from sugar, of which a greater proportion is exported.

Prices fall

However, the comments failed to prevent investors selling sugar anew, sending the March contract 1.5% lower to 17.97 cents a pound in late deals, and the better-traded May lot down 0.6% to 18.05 cents a pound.

"A third consecutive global market surplus of sizeable proportion is expected to weigh on prices this year," the bank said, restating estimates of a surplus of 8.5m tonnes this season and 5.6m tonnes in 2013-14, on a September to October basis.

The International Sugar Organization last week lifted to 8.5m tonnes its estimate of the 2012-13 output surplus.


Twitter Linkedin eCard
Related Stories

Funds renew ag selling wave - leaving them open to 'precarious position' on soy

... and potentially leaving them vulnerable to short-covering drives in the likes of wheat, coffee and sugar too. Still, in cotton...

Brokers enter 2018 upbeat on ag market, lifting price hopes

The market is expected to perform far better this year than in 2017, FocusEconomics says, flagging price upgrades in a range of contracts - notably wool

Hedge fund position in numbers, for week to January 16

Markets extra lists the latest official data on hedge fund positions in ag commodity derivatives, and how they have changed week on week

Morning markets: Soybean futures gain on rising Argentina dryness worries

... at a time when hedge funds have a hefty net short in the oilseed. Could this end up prompting a price spike? Wheat futures get help from Black Sea cold concerns
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of the Briefing Media group
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069