Commodities

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Now might be a good time to take note of how much your snack-time chocolate bar weighs. If sugar prices keep heading the way they've been going this year, it could be getting smaller.

Prices of raw sugar rose to the highest in almost two years last week. Heavy rains in Brazil, the world's biggest exporter, have hurt cane crushing, while strong soybean prices have helped that crop take the sweetener's place in port queues out of the country.

Global sugar stocks dropped to their lowest since 2011 at the end of May, according to the U.S. Department of Agriculture. That dynamic tends to drive prices higher.

Beet It
Global sugar stocks have reached their lowest levels since 2011
Source: U.S. Department of Agriculture, Bloomberg

That's just the start of it. India, the world's second-largest sugar producer, will turn net importer in the 2016-2017 season that starts in October, trader ED&F Man told Bloomberg News. A wetter monsoon this year won't be enough to offset the previous two dry years, and production will fall to less than 23.5 million metric tons, ED&F Man estimates.

Futures curves for the benchmark No. 11 raw sugar contract have already been trending higher, with prices for delivery next month now running 24 percent above where they were a year ago. Compared to the start of the last Indian crop season in October 2015, following-month prices are up 43 percent.

Bittersweet
Futures curves for benchmark No. 11 sugar contracts suggest a market that's getting higher and tighter
Source: Bloomberg

Traders are taking notice. Investment funds' net-long position in sugar futures surged last month to the most since at least 2006, according to data from the U.S. Commodity Futures Trading Commission. That sort of bullish shift can be interpreted two ways: It may herald rising prices, but could also indicate volatile speculative bets are driving things as much as hedging by commercial producers.

I Want Candy
Investment funds' net-long position in sugar futures has risen to the highest level since at least 2006
Source: U.S. Commodity Futures Trading Commission, Bloomberg

There's reason to think this particular sugar rush may last a while longer. The contract's relative-strength index, a measure of traders' sentiment, isn't yet in territory that suggests it's overbought and headed for a fall, Bloomberg-compiled data show.

Not Too Saccharine
The relative-strength index for sugar futures suggests it's not yet in overbought territory
Source: Bloomberg

Meanwhile, output from Thailand, a top-10 producer, fell to its least in five years in the season ended April, while the European Union, whose beet farms once made it the second-biggest exporter, last month scrapped plans to boost supplies due to opposition from some member states.

In Brazil, sugar producers that had previously borrowed heavily in U.S. dollars are facing bankruptcy and debt restructurings that are likely to crimp capital spending and constrain additional supply coming to market.

That should be enough to keep sugar bulls sweet for some time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net