El Nino's Sugar Shortage Drives Bullish Bets to Seven-Year High

El Nino is making a mess of the world’s sugar production, driving up prices as investors amass the biggest bullish position in seven years.

Speculators boosted their the net-long position in raw sugar to the highest since March 2008, according to data for last week released by the U.S. Commodity Futures Trading Commission that excludes index funds. El Nino has led to excessive rain in Brazil and dryness is hurting crops in India and Thailand.

Sugar prices are up 45 percent since late August and the contract is the best-performer in the Bloomberg Commodity Index over the past six months. After five years of surplus that sent prices to the lowest since 2008, supply is expected to fall short of demand in the 2015-16 season.

“The end of the surplus cycle is probably the main reason why people are betting on further price rises,” Michaela Kuhl, an analyst at Commerzbank, said by phone from Frankfurt. “We’ll see how much of that will really materialize.”

Raw sugar for March delivery was little changed at 15.48 cents a pound on ICE Futures U.S. in New York. White sugar for the same month added 0.3 percent to $416.20 a metric ton in London.

Cane Harvesting

World sugar prices tracked by the United Nations’ Food & Agriculture Organization rose 4.6 percent in November after jumping 17 percent in October. The downpours in Brazil have hampered cane harvesting and reduced the amount of sweetener in the crop.

Rainfall in Brazil’s main-producing region of center south may leave output 1 million tons lower than forecast, FCStone said last week. In Brazil’s Sao Paulo state, which accounts for about 58 percent of the country’s harvested cane, northern areas received more than twice normal rainfall in the past month, according to data from World Ag Weather.

Speculative bets on rising prices exceeded short positions by 212,384 contracts as of Friday, CFTC data show. The net-long position increased 2 percent from the previous week. It represented 18.2 percent of total market open interest, compared with 15.7 percent in March 2008, according to Green Pool.

“It’s a justifiable concern that the managed-money sector is simply reading too much into the El Nino story,” Tom McNeill, director of Green Pool Commodities, wrote in a report.

In other markets, arabica coffee for March delivery fell 0.6 percent to $1.2615 a pound in New York. Robusta for Jan. declined 0.1 percent to $1,534 a ton in London. Cocoa for March slipped 0.1 percent to $3,388 a ton in New York.

— With assistance by Isis Almeida