Brazil Shows `Red Flag' to Sugar Bulls High on Futures Rally

  • Country's exports trade at bigger discounts in physical market
  • Demand `almost vanished' as futures surge: Swiss Sugar Brokers

Sugar bulls on a high over surging futures prices be warned. Brazilian export sales are still signaling market weakness and sluggish demand.

While futures jumped 36 percent in the past two months, exporters are selling sugar in the physical market at a wider discount. That raises a “red flag” for traders as export sales aren’t reflecting the potential for a shortfall in supply that’s being priced in by futures markets, according to Arnaldo Luiz Correa, a partner at Archer Consulting.

Brazilian exporters offered raw sugar for prompt loading at a discount of 1.1 cent a pound to the ICE Futures U.S. price last week, according to Green Pool Commodity Specialists. That’s more than the 0.75 cent a week before. A cargo for loading in the fourth quarter at Santos port, Brazil’s biggest, traded at a discount of 1 cent, Swiss Sugar Brokers said.

Brazil sugar discounts widen
Brazil sugar discounts widen

“The physical export market does not mirror a probable reduction in the amount of cane to be crushed and smaller sugar availability," Correa said in a report e-mailed Oct. 31. “Sugar traded in the physical market still doesn’t show the same energy of the futures."

Vanishing Demand

Futures are up as a return of the El Nino weather pattern led to dry weather threatening to cut output in India, the second-largest producer. China, the biggest importer, is also set for its smallest crop in a decade, while rain in Brazil’s main growing region of Center-South has slowed harvesting and reduced sugar levels that can be extracted from cane.

Raw sugar futures traded on the ICE Futures U.S. exchange rose to the highest in more than nine months. The sweetener for March delivery touched 15.53 cents a pound and was up 2.3 percent at 15.45 cents by 10:31 a.m. in New York.

Rising prices have, meanwhile, hurt demand from importing countries. With reports that China, the world’s largest buyer, is canceling some cargoes it already bought, there are more shipments available for sale and no buying interest, Naim Beydoun, a broker at Rolle, Switzerland-based Swiss Sugar Brokers, said in an Oct. 31 report.

"Demand from destination almost vanished whether on white or raw sugar," Beydoun said. "Action on the physical market is missing."

Brazilian raw sugar for loading in December was offered for sale last week at a discount of 0.7 cent a pound, Green Pool said. That’s steeper than the 0.5 cent a pound offered a week earlier, according to the Brisbane, Australia-based researcher.

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