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Have sugar futures found a floor at a six-year low?

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It looks a brave investor who expects the recovery in sugar futures to last.

Raw sugar futures, which in the last session tumbled 3% to a six-year low of 11.61 cents a pound in New York, staged some recovery on Friday, standing up 0.7% at 11.72 cents a pound in late deals.

However, analysts were cautious over calling a turn in the market, even after a fall of nearly 20% so far this year, and of nearly 70% from 2011 highs.

Real issue

While the drop in prices comes in the face of a build-up in stocks from a series of seasons of world production surplus, not all the threats to values have come from the sugar balance sheet itself.

The weakness of the real has also had an impact, cutting the value in dollar terms of assets in which Brazil, the world's top sugar producer, is a big player

Tracey Allen, senior commodities analyst at agricultural lender Rabobank, noted a "pronounced currency influence" on the last session's price low, citing the falling real.

The Brazilian real was down 1.6% at one point, although it later rallied as markets absorbed a commitment by the Brazilian central bank to fight inflation.

"We're seeing strong relationship between currency and the price of sugar," she noted.

"We're tracking the currency markets very closely."

A low real means that Brazilian producer's will take lower prices in dollar terms. Brazil is the world's largest sugar producer.

El Nino…

Still, asked if there was anything that was likely to rescue sugar from the doldrums, Ms Allen said: "Everyone still has their eye on El Nino"

El Nino has a mixed effect on sugar production in the Americas, where it tends to increase rainfall, which is good for cane production, but can reduce the yield of sugar in cane, encouraging plants to use up their reserves in growth.

But in India, the world's second largest sugar producer, the weather phenomenon has a marked tendency to cause Indian dryness.

The Indian Meteorological Office has forecast this year's monsoon, currently in its early stages, at 88% of normal, below drought levels.

El Nino's habit of bringing dryness to South East Asia can also set back output in the likes of Thailand, the second-ranked sugar exporter, and Indonesia.

'Last sign of desperation'

However, Ms Allen noted that a weak Indian monsoon would have only limited effect on production this year, when Rabobank is looking for a "record large Indian crop"

Robin Shaw, sugar analyst at London broker Marex Spectron was also quick to downplay the threat from an Indian monsoon.

"I think it's always the last sign of desperation when you get interested the weather."

He noted the good water levels in India, where half the crop is irrigated, meaning that any dent from a weak monsoon was likely to be stronger in 2016, if storage water is run down.

'Rudderless raft'

As for Brazil's Centre South region, the key sugar area of the world's largest producer, output so far this season, which started in April, is lagging last year's levels, as more cane is diverted to making ethanol.

However, latest cane harvest data were also seen as confirming that there will be no great drop in Brazilian production and no great reduction in sugar stocks, even if the world market does slip into an output deficit in the 2015-16 season.

The insensitivity of sugar producers to cutting their output in the face of low prices is leaving the sugar market "a rudderless raft", slow to correct the global oversupply.

'Line of least resistance…'

Still, if there is any direction, it looks downward.

The break in futures on Thursday to six-year lows "just happened because the market was holding until it couldn't hold up any more," Mr Shaw said.

"The way up is closed, the way down is open," he said, noting that any prolonged upward movement in sugar prices could trigger selling from the ample global reserves.

"The line of least resistance is down."

The one hope for sugar bulls may be that commodity price recoveries have a habit of kicking in just when the consensus is strongest for prices to extend declines.

By William Clarke

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