Sugar futures spike

by Ron Sterk
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New York world raw sugar futures rose to 30-year highs last week on global supply concerns and weakness in the U.S. dollar, while U.S. bulk refined sugar prices held strong amid good demand and uncertainty about the unplanted 2011 U.S. beet crop.

On Nov. 4 nearby No. 11 world sugar futures hit a new 30-year high above 32c a lb, nearby No. 16 domestic raw sugar futures in New York traded at a multi-year high of 41.50c a lb, and London white sugar futures rose to an all-time high of $788 a tonne. The fireworks resulted from weakness in the U.S. dollar following the Federal Reserve’s announced plan to buy $600 billion in treasury bonds to support the U.S. economy and India’s announcement to allow sugar exports of only 930,000 tonnes after Nov. 15, bringing the total since September to 1.5 million tonnes, well below trade expectations of 2.5 million to 3.5 million tonnes. Those events coupled with already rising futures prices related to globally tight supplies and strong sugar demand. Prices for dollar-denominated commodities such as sugar, cocoa and coffee rise as the value of the dollar falls because it takes more dollars to buy them.

It was expected the new marketing year would bring abundant sugar supplies, both domestically and globally, after global deficits the prior two years. But global supply has been anything but assured. India, the world’s second largest producer and largest sugar user (for human consumption), appears to have recovered from recent crop disasters that made it a net sugar importer and the main driving force behind soaring sugar prices the past couple of years, but it is approaching export markets cautiously.

Brazil, the world’s largest sugar producer and exporter, also was coming off crop problems a year ago but was expected to rebound in 2010-11. While sugar exports from that country have increased significantly from a year earlier, shipments were slowed by long loading delays at ports and mills were slowed by adverse weather, resulting in lower-than-expected outflow to foreign markets.

Weather-related crop problems also are expected to limit exports from Australia, Thailand and Mexico, and increase import needs in the Philippines and Pakistan.

Domestically, sugar users also were expecting, or at least hoping for, more ample sugar supplies and lower prices in 2010-11 (October-September) after the summer’s tight supplies and historically high prices. Prices are in fact down from 2009-10 highs, but they remain above expectations with strong demand a key.

Domestic bulk refined sugar prices had quickly escalated from a 2010 low of 45c a lb f.o.b. in May to a peak of 64@67c a lb in early September as supplies tightened more than expected and Mexico failed to fill the supply gap as it did a year earlier. Values dropped back to 54c a lb later in September as an early harvest allowed beet processors to make 2010 crop sugar available before the new marketing year began Oct. 1. Prices ticked up to 55c a lb in late October and remain at that level, which is 10c a lb, or 22%, above the year-ago price, and 25c a lb, or 83%, above the 10-year average price for early November near 30c a lb.

Demand, meanwhile, appears strong as the U.S. Department of Agriculture has raised estimated 2009-10 domestic sugar use for food by 320,000 tons and projected 2010-11 use by 575,000 tonnes since July. Continued switching to sugar from high-fructose corn syrup remains a factor.

While the trade is concerned about global sugar supply, even more uncertainty exists for the U.S. 2011-12 supply because of the current ban on planting bioengineered sugar beet seeds in 2011 due to a ruling in the case Center for Food Safety et al v. Vilsack, in California’s northern district. Results were awaited from a three-day evidentiary hearing last week. The U.S.D.A. indicated it preferred a plan that would allow planting of bioengineered seed in 2011 under government control.

Some analysts have estimated a ban on bioengineered sugar beet seed, which accounted for about 95% of U.S. plantings in 2010, may reduce U.S. sugar production by at least 20%. Beet sugar was projected to account for 58% of total U.S. sugar production in 2010-11, according to the latest U.S.D.A. World Agricultural Supply and Demand Estimates. After accounting for carryover stocks and imports, beet sugar was expected to make up 44% of total domestic sugar use.

While prices in deferred futures contracts suggest the trade expects raw sugar prices will decline after the first quarter, bulk refined prices in the U.S. at 50@53c a lb f.o.b. through Sept. 31, 2011, indicate limited downside prospects, especially considering some traders expect world prices could rise at least another 5c a lb in coming months.

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