Sugar Surges to Four-Year High as Global Supply Concerns Mount

  • Futures trading jumps; Brazil’s crush seen hurt after frost
  • Rally in 2016 tops commodities in index; bullish options jump

Sugar futures jumped to the highest in more than four years as concern mounted that a global supply deficit will increase partly because of adverse weather in Brazil, the world’s top producer and exporter.

On ICE Futures U.S. in New York, raw sugar for March delivery surged 6.2 percent to settle at 22.47 cents a pound. Earlier, the price reached 22.86 cents, the highest for a most-active contract since July 31, 2012. Estimated aggregate trading rose to 324,785 contracts, the most since Feb. 24, 2014. The commodity has soared 47 percent this year as the world market headed for a second straight shortfall.

Some of Brazil’s Center-South sugar cane probably was harvested and crushed prematurely in the first half of September after mid-year frosts, Antonio de Padua Rodrigues, technical director of Sao Paulo-based industry group Unica, said Thursday in a telephone interview. The accelerated pace of processing may erode sugar content. Cane output dropped 19 percent in the second half of August from year earlier.

“If upcoming results for September confirm a steeper-than-normal decline in agricultural yield,” then the consensus for cane estimates “may have to be reduced,” James Cassidy, global head of sugar derivatives at Societe Generale in New York, said in a report. “The combination of lower sugar production and associated reductions to next year’s crop could emerge as fresh news.”

Southern producing areas in India, the second-largest grower, still face “significant dryness,” and parts of China were probably flooded following Typhoon Meranti, according to MDA Weather Services in Gaithersburg, Maryland.

La Nina

On Sept. 8, the U.S. Climate Prediction Center dropped its La Nina watch, a weather event that tends to bring heavier monsoon rains to parts of Asia, including India, where crops were parched in the past year. Given the shift, the market is probably pricing in a normal monsoon for 2017, Artur Manoel Passos, an economist at Itau Unibanco Holding SA in Sao Paulo, said in an e-mail.

“All in all, several signs of sizable deficits in the global balance are increasing the risk of another round of price increases,” he said.

Sugar’s rally may boost costs for candy companies including Nestle SA. This year’s jump was the most among 22 raw materials in the Bloomberg Commodity Index. The price climbed 5 percent in 2015.

Bullish options jumped on Friday. A call giving the owner the right to buy March futures at 23 cents rose 75 percent to 1.94 cents in trading of 8,052 contracts, the most-active.

On ICE Futures Europe in London, white sugar for December delivery climbed 4.9 percent to $583.40 a metric ton. Earlier, the price reached $591.90, the highest since Oct. 10, 2012.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE