Sugar traders are the most bullish in two months on speculation rain may again disrupt the harvest in Brazil, the world’s largest producer, just as output and exports from second-ranking India decline.
Twelve of 18 traders surveyed by Bloomberg expect raw sugar to gain next week and three were bearish, the most bullish since July 6. The commodity has gained 6.9 percent this week to 20.72 cents a pound on ICE Futures U.S. in New York.
Brazil’s main growing area is set to get rain again as of Sept. 20, according to weather forecaster Somar Meteorologia in Sao Paulo. Prices climbed 8.2 percent in June and 7.8 percent in July after rainfall delayed its harvest and shipments.
Sugar production in India, the biggest consumer, may be 23.5 million metric tons in the season starting in October because of dry weather, according to ED&F Man Commodities India Pvt. That’s less than the 24 million tons estimated by the country’s Sugar Mills Association and the 26 million tons produced in 2011-12.
India won’t export sugar from the domestic crop in the fourth quarter, John Stansfield, a senior analyst at Vitol Services Ltd., said at a conference in New Delhi this week. Shipments under the so-called tolling mechanism which allows refineries to import raw sugar and re-export the refined product will continue, he wrote in an e-mail today.
“There are still some weather issues both in Brazil and India and sugar is clearly undervalued right now,” Michael McDougall, head of the Brazil desk at broker Newedge Group in New York, said by e-mail yesterday. “Millers in Brazil will probably leave more cane in the fields if rain returns, which will tighten availability for the rest of this year.”
Sugar has fallen 11 percent this year as supplies were forecast to outpace demand by 5.9 million tons in 2012-13, a third consecutive surplus, the International Sugar Organization in London estimated last month. The commodity is the fourth worst performer in the Standard & Poor’s GSCI index of 24 raw materials, beating coffee, cotton and lean hogs.
Sugar’s drop accelerated last month as dry weather in Brazil helped boost production. Sugar-cane processing in the center south, the country’s main growing region, climbed 14 percent to a record 46.5 million tons in the second half of August, according to data from industry group Unica. Cane processing for the season through Aug. 31 fell 9.4 percent to 307.6 million tons, Unica estimates show.
“This year’s crop is still behind last year’s and if it rains in October, millers won’t be able to process all of the cane,” Bruno Lima, a risk consultant a INTL FCStone Inc. in Campinas, Brazil, said by phone yesterday. “The crop in India, which is already forecast to be smaller, may start late to allow for the cane to mature after a poor monsoon.”
While all of September will still be drier than normal in Brazil’s cane-growing regions, wet weather in October may be 10 to 15 percent above average, Celso Oliverira, a meteorologist at Somar, said yesterday. World Weather Inc. forecast rain at normal levels in October, with precipitation increasing to 1.5 times to 2.5 times above the norm in November and December, Drew Lerner, president of the Overland Park, Kansas-based company, said yesterday. Rain in May and June that delayed the crop was more than double the average, according to Somar.
India is unlikely to export any of its 1.5 million-ton surplus in the fourth quarter and in the first three months of 2013, according to Manish Gupta, head of sugar trading at Singapore-based raw materials trader Olam International Ltd. Exports may emerge after there is more clarity on the size of the crop, he said in an interview on Sept. 1. In Thailand, the second-biggest sweetener exporter, production will be 9.5 million to 10 million tons in 2012-13, down from 10.2 million tons this season, according to Mitr Phol Sugar Corp.
Large and small sugar speculators excluding index funds have been betting on lower prices for three weeks to Sept. 4, according to U.S. Commodity Futures Trading Commission data. Prices fell 3.9 percent in the week ended Sept. 4 as the net short climbed by more than 13 times.
Sugar may rise at least 2 cents a pound when investors return to buy futures to close bets on lower prices, according to Piromsak Sasunee, chief executive officer at the Thai Sugar Trading Corp., Thailand’s biggest exporter.
Prices may also gain if the Brazilian government raises the percentage of ethanol into gasoline back to 25 percent from 20 percent now, and rising corn prices result in more exports of the biofuel to the U.S. Both sugar and ethanol are made from sugar cane in Brazil. Corn has climbed 21 percent this year after the worst drought in the U.S. since 1956.
“If the government raises the mixture of ethanol into gasoline still this year as some expect, millers could take away some cane away from sugar production,” FCStone’s Lima said. “Rising corn prices may also mean that the Brazil could increase ethanol exports to the U.S.”
Raw sugar survey results: Bullish: 12 Bearish: 3 Hold: 3 White sugar survey results: Bullish: 12 Bearish: 3 Hold: 3 White sugar premium results: Widen: 6 Narrow: 3 Neutral: 9