Sugar Heads for Fourth Monthly Gain on India's Supply Concerns

  • Dry weather also threatens Brazil's production, exports
  • In fourth quarter, sugar posts top gain among 22 commodities

Sugar futures headed for a fourth straight monthly gain, the longest rally in five years, as adverse weather in India heightened concern that a projected global supply deficit will increase.

Uttar Pradesh and Maharashtra, the top producing states in India, were parched in the past two months and won’t get much precipitation in the next few weeks, probably eroding yields for the next crop, Donald Keeney, a senior agricultural meteorologist for MDA Weather Services in Gaithersburg, Maryland, said in a telephone interview.

Since the end of August, sugar prices have surged 42 percent amid forecasts for the first world shortfall in six years. Dry conditions have reduced output in Brazil, the world’s top producer and exporter, and mills are using more cane to make ethanol. In India, the second-biggest grower, output will drop 5.7 percent in the 12 months ending Oct. 30 from a year earlier, the U.S. Department of Agriculture said in November.

‘Nervous’

“Indian producers of sugar cane and any crop must at least be a bit nervous about the coming season,” Michael McDougall, a broker at Societe Generale in New York, said in an e-mail. “The country has never had three deficient monsoons in a row, but low water stocks are making the coming year and even coming months more critical.”

On ICE Futures U.S. in New York, raw sugar for March delivery rose 2.5 percent to settle at 15.15 cents a pound at 1 p.m. In December, the price has climbed 1.5 percent. A fourth consecutive monthly increase would mark the longest rally since October 2010.

This quarter, sugar has advanced 18 percent, the most among 22 raw materials in the Bloomberg Commodity Index, a measure of investor returns. The individual components in the broad measure are calculated to smooth out futures rollovers.

This season, global demand will top supplies by 3.53 million metric tons, the International Sugar Organization said on Nov. 5. In India, the production outlook and rising domestic prices eroded prospects for exports, McDougall said. The country approved subsidies to farmers following losses at mills.

Sugar futures have gained 4.3 percent in 2015. The price dropped in the previous four years, a record slump.

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