Raw sugar futures, which for so long struggled to find buyers, attracted a fresh batch of fund support, driving prices to a nine-month closing high – although there are concerns about how long this popularity will last.
Raw sugar for March closed up 2.5% at 15.49 cents a pound in New York, taking gains this week already to 6.7%.
Since hitting a seven-year low in late August, the sweetener has rebounded more than 50% on a front contract basis.
And there are ideas that the rally may not be over yet, given the prospect of the first global production deficit in some six seasons in 2015-16, with ideas (not shared by all commentators) that this may show in a squeeze in supplies in the first three months of next year.
‘Incendiary’
Certainly, forecasts for wetness in Brazil’s key Centre South producing region have helped bulls’ cause, in slowing the cane harvest and potentially tempting mills to bring forward seasonal shutdowns, which are typically started later this month or in December.
“Weather forecasters also expect much of the South Brazilian cane region to remain on the wet side for the next week or so,” said Tobin Gorey at Commonwealth Bank of Australia.
“Mills by this time of the season are never far from shutting down so an abrupt end to the crush is becoming more likely.
“For a market that was already looking for tight trade flow balances in the first quarter of next year that is incendiary,” he said flagging also that “both fundamental and momentum factions will be on the same side of the move”, so rendering the rally particularly attractive to funds.
Fund moves
Indeed, a fund shift into sugar was noted by other observers too, such as Commerzbank, which noted that “short-term-oriented market participants are betting on a price-driving tightening of sugar supply”.
They had as of a week ago (the latest data available) raised their net long in raw sugar futures and options to some 137,221 lots.
That is significantly more bullish positioning than has prevailed for the last year, but still has some way to go before topping 200,000 lots, as it has done previously – suggesting some room yet for further fund long bets before the position looks “crowded”.
‘Demand ideas remain strong’
And they have other reasons to feel comfortable in fresh long bets too, with the real strengthening on Tuesday by 2.0% against the dollar, so raising the value in dollar terms of assets such as sugar in which Brazil is a major player.
There is supportive news from outside Brazil too.
“South East Asian producers have been affected by El Nino and export offers have been dropping,” said Jack Scoville at Price Futures Group.
India, the second-ranked sugar producer, “also has less production as drought hurt growing areas in the south west part of the country” after a weak monsoon.
Meanwhile, “demand ideas remain strong, with China thought to be buying a lot of sugar, especially from Thailand”, Mr Scoville added.
‘Nervous murmurings’
All this said, observers flagged caution over getting too excited over the rally, with Mr Gorey, for instance, noting that “there is a chance that the trade might be caught on the wrong side” of the market if prices reverse.
Sucden Financial cautioned of worries that the “supersonic” market could be “about to spectacularly go ‘bang’ like a firework.
“There are nervous murmurings around considering the upside potential of the net spec fund position being closer to satisfying their full appetite,” the broker said.
“Once funds run out of ammunition, clearly we will start to correct. But is that now or at higher levels?”
Coffee in demand
Arabica coffee futures rose too, helped by the stronger real, but also the relatively weak premium to robustabeans, which are gaining support from dry weather in Brazil’s key area for growing the variety.
December arabica coffee gained 1.2% to 120.25 cents a pound in New York, while London-traded robusta beans for January gained 1.0% to $1,645 a tonne, attempting to build a base above its 75-day moving average.
Data on Brazilian coffee exports came in at a record 3.31m bags, up from 2.92m bags in September and the 3.09m bags shipped in October 2014.
That could be considered a bullish or bearish factor – depending on whether the data show more supplies in Brazil than had been thought, or are driving the country ever closer to pipeline supplies which would send prices soaring.
‘Turnaround Tuesday trade’
The buying spread to Chicago too, where wheat futures for December ended 1.6% higher at $5.16 ½ a bushel, overcoming a weak start after official data overnight showed rains bringing some recovery to the condition of US winter wheat sown ahead of the 2016 harvest.
In fact, there was some idea that funds may have been too eager to sell in the decline in prices in the last session.
“Funds liquidated Friday’s new longs in yesterday’s session,” said Benson Quinn Commodities earlier in the day.
“This might set us up for turnaround Tuesday trade today.”
(Chicago traders have a saying that prices on the second session of the week tend to reverse a strong movement in the first session.)
‘Completely postponed planting’
And there were some fundamental winds in wheat’s favour, with Ethiopia announcing the purchase of 800,000 tonnes of wheat at a tender many traders had been sceptical of, saying the country lacked the wherewithal to import that kind of volume.
And a poor start to Ukraine’s winter wheat crop, to be harvested in 2016, was highlighted by a US Department of Agriculture report overnight.
“Winter crops being planted for 2016-17 could be at risk due to unfavourable weather conditions and delayed planting,” the briefing said.
“Low moisture content in the soil due to insufficient rains during the last few months caused farmers to fall behind optimum planting schedules.”
Experts say that producers “have already missed optimum dates for planting winter crops even in the southern regions and some of them completely postponed planting”.
While the European Commission raised its estimate for the
‘Light farmer selling’
Corn futures gained too, by 0.8% to $3.80 ½ a bushel for December delivery, helped by fellow grain wheat, and by ideas of slow US farmer selling.
“The tail end of harvest in the Midwest continues to slowly trickle in with more pictures and stories of temporary storage and light farmer selling,” said Tregg Cronin at Halo Commodity Company.
“Farmers in the eastern Corn Belt seem content to wait for $4.00+ a bushel cash,” he said, although acknowledging that growers in the western Corn Belt, where yields have been high, have less bargaining power.
There is also growing talk of a sharp drop in Chinese output, with CHS Hedging noting that “a private research group is saying China will not produce a record corn crop but instead will see production fall by 5.8%, the most in 15 years”.
A weak harvest might at least make China less keen on barring imports of corn-based feed ingredient distillers’ grains, DDGs, from the US as is currently worrying investors.
On the negative side for prices, Informa Economics raised to 170.1 bushels per acre its forecast for the US corn yield this year, from a previous estimate of 168.4 bushels per acre, and a USDA estimate of 168.0 bushels per acre.
Falling soy
Informa raised its estimate for the soybean yield too by 0.7 bushels per acre to 47.9 bushels per acre, which would be a record if realised, beating last year’s figure of 47.5 bushels per acre.
The USDA currently forecasts a 47.2-bushels-per-acre result.
And soybean futures proved less resilient, rising by a modest 0.25 cents to $8.79 a bushel for January delivery.
A dog which didn’t bark was seen as a bit of a downer too, with Darrell Holaday at Country Futures terming a “little negative” a failure by the USDA to announce a further export sale of US soybeans to China.
“There has been discussion that China has purchase another 250-350,000 tonnes, but no confirmation,” Mr Holaday said.
“But there are also thoughts that they have now turned to buying for February delivery and are now looking at booking South
American production for that period of time.”
The rains in Brazil slowing cane harvesting are viewed as more favourable for newly-sown soybeans requiring more moisture to establish themselves.
