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Sugar Futures Enter Bull Market on Parched Brazil Crop

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Feb. 27 (Bloomberg) -- Sugar futures entered a bull market, climbing more than 20 percent from a January low, as dry weather threatens crop yields in Brazil, the world’s top producer and exporter.

On ICE Futures U.S. in New York, raw sugar for May delivery rose 2.3 percent to settle at 18.07 cents a pound at 1:06 p.m. The price climbed 23 percent from the 43-month closing low of 14.74 cents on Jan. 29. Brazil is also the biggest grower and shipper of coffee, which surged into a bull market last month.

Copersucar SA, a producer cooperative based in Sao Paulo, cut its cane forecast on Feb. 24 for Brazil’s Center South, the top producing area, by 6.6 percent in the season starting in April following parched conditions since the start of this year. In February, futures have jumped 16%, heading for the biggest gain since December 2010.

Lower output in Brazil and India, the second-biggest producer, may spur the first global deficit in five years, F.O. Licht, a Ratzeburg, Germany-based research company, said this week. The price rally might boost sugar costs for companies including Krispy Kreme Doughnuts Inc.

“This is now a weather market,” Kona Haque, an analyst at Macquarie Group Ltd. in London, said in a telephone interview. “Just like it has been for coffee, all bets are off as to where prices could go if the situation in Brazil continues to deteriorate, given the country’s relevance as a supplier of the commodities. The situation in India is compounding the outlook for reduced sugar supplies.”

Three-Year Slump

In 2013, sugar futures fell 16 percent, the third straight drop and the longest slump since 1992, amid expectations for record stockpiles after four straight years of surpluses, according to the U.S. Department of Agriculture. Licht didn’t provide an estimate for a deficit.

Brazil’s Minas Gerais, a major cane-growing state and the nation’s leading coffee producer, will face dry conditions again after showers from this weekend to March 3, Bethesda, Maryland-based Commodity Weather Group said today in a report.

Arabica coffee, brewed by specialty companies including Starbucks Crop., has soared 62 percent this year. That marks the biggest gain among 24 commodities in Standard & Poor’s GSCI Spot Index of 24 raw materials. Brazil is the top producer and exporter.

Coffee futures for May delivery rose 0.4 percent to $1.784 a pound at 1:29 p.m. on ICE.

Hogs have posted the second-biggest gain this year at 22 percent among GSCI components, followed by gold and sugar.

To contact the reporters on this story: Liyan Chen in New York at lchen335@bloomberg.net; Marvin G. Perez in New York at mperez71@bloomberg.net

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

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