Raw sugar futures for July delivery traded at a premium to the October contract for the first time since March 30 as rains disrupted the harvest and delayed shipments from Brazil, the world’s largest producer.
The July contract on the ICE Futures U.S. exchange in New York commanded a premium of 0.07 cent a pound to the sweetener for October delivery by 7:13 a.m. in New York, after touching as much as 0.15 cent a pound. That compares with a discount of 0.08 cent a pound by the close yesterday. The so-called backwardation market structure, in which near-dated contracts are more expensive than later ones, may signal limited supplies.
“Mills in center south Brazil have underestimated the quantities needed at ports to fulfill obligations for July shipment,” Nick Penney, a senior trader at broker Sucden Financial Ltd. in London, wrote in a report e-mailed today. “Rainy weather is threatening to increase the build-up of vessels waiting to load as rain prevents or delays loading.”
The amount of sugar waiting to be loaded at the main ports in Brazil climbed 37 percent over the past week after rain disrupted deliveries. The total waiting to be loaded was almost 2.2 million tons of sugar yesterday, according to shipping agency Williams Servicos Maritimos Ltda. That compares with 1.6 million tons a week earlier.
“Physical off-take for the July shipment position has been higher than at first thought, forcing traders to cover short sales in the secondary market leading to a strengthening of differentials for July shipment out of center south,” Penney said. Differentials refer to a discount or a premium to obtain physical sugar in relation to the futures price.
Raw sugar for June loading at the port of Santos, Brazil’s largest, was at a premium of 0.15 cent to 0.2 cent above the ICE Futures U.S. July contract on June 3, Swiss Sugar Brokers said. That compares with a premium of 0.12 cent on May 27.