Friday 13 April 2012

Sugar Surplus Prompts Traders’ Bear Streak: Commodities


By Nicholas Larkin and Isis Almeida - Apr 13, 2012
BLOOMBERG
Sugar traders are bearish for a seventh consecutive week, the longest stretch since at least 2007, on prospects for the first supply glut in four years.

Sixteen of 22 analysts expect raw-sugar prices to decline next week and one was neutral, according to Bloomberg’s weekly sentiment survey that began in April 2007. Global production will exceed demand by 10 million metric tons in the 12 months ending in September, equal to about a year of U.S. consumption, according to Singapore-based Olam International Ltd., which trades and processes commodities in 65 countries.

Prices that surged to a 30-year high in February last year spurred farmers to plant more cane and beet, expanding global production to a record this season. Futures traded in New York slumped 10 percent in the past three weeks on mounting concern about another glut next season. Thailand, the world’s second- biggest exporter, may ship the most supply ever this year, the country’s Office of the Cane & Sugar Board said this week.

“We have a surplus this year and it looks like we will have another one next year and that is more bearish than we initially thought,” said John Stansfield, a senior analyst at Olam in London. “The last time the glut for two consecutive years was so big, prices were significantly lower.”

Erases Gains

Sugar’s retreat in the past three weeks to 23.52 cents a pound on ICE Futures U.S. eroded this year’s gain to 0.9 percent and left futures 35 percent lower than the three-decade high of 36.08 cents reached in 2011. Prices averaged 11.16 cents from October 2006 to September 2008, the last time there was two consecutive annual supply gluts. Production costs have risen since then, setting a higher floor for prices, Stansfield said.

The Standard & Poor’s GSCI gauge of 24 commodities rose 6.6 percent this year compared with a 9 percent increase in the MSCI All-Country World Index (MXWD) of equities. Treasuries lost 0.3 percent, a Bank of America Corp. index shows.

Global production will advance 4.2 percent to 168.2 million tons this year, compared with a 2.1 percent gain in consumption to 160 million tons, the U.S. Department of Agriculture estimates. Olam anticipates a surplus of 7 million tons in the next season. The surplus this season would be the first in four years, Stansfield said.

Production in India, the second-biggest producer after Brazil, climbed 13 percent to 23.2 million tons in the six months ended March 31, the Indian Sugar Mills Association said April 3. Thai shipments may rise 20 percent to 8 million tons in 2012, the Office of the Cane & Sugar Board’s Secretary General Prasert Tapaneeyangkul said in an interview.

Trading Commission

Hedge funds and other speculators cut their bets on higher prices by 12 percent in the week ended April 3 and now hold 118,339 U.S. futures and options, data from the Commodity Futures Trading Commission show. The net-long position was 143,577 contracts on March 2, the most since August.

Production in Brazil, the world’s biggest grower, was damaged last year by dry weather and frost, driving prices up 56 percent from May to July. The center south of Brazil, which accounts for about 90 percent of the country’s production, was forecast in March last year to have record cane production of 568.5 million tons by industry group Unica. Output was actually 493.3 million tons. Unica yesterday forecast this year’s harvest in the center south at 509 million tons.

Sugar for May delivery on ICE Futures U.S. is trading at a 3 percent premium to the July contract, compared with as little as 1 percent three months ago, an indication that traders are still concerned about near-term supply.

Sugar Consumption

“The premium May raw-sugar futures command over July suggests that supplies are tight for now ahead of the start of the center south Brazil crop,” said Peter de Klerk, an analyst in London at Czarnikow Group Ltd., which traded sugar in more than 90 countries last year.

Sugar consumption rose every year since 1994, USDA data show. Demand will be a record 167.8 million tons this season, according to the International Sugar Organization, whose members include 86 countries. Declining prices and economic growth will drive buying, said Leonardo Bichara Rocha, a senior economist at the ISO in London. The International Monetary Fund anticipates a 3.3 percent expansion in the global economy this year.

Prices will average 22 cents this quarter and the next and 21 cents in the final three months of the year, 6.5 percent less than now, Deutsche Bank AG estimates. That compares with a five- year average of 18.6 cents, data compiled by Bloomberg show.

Annual Advance

In other commodities, 19 of 26 traders and analysts surveyed by Bloomberg expect gold to gain next week. Futures on the Comex in New York increased 6.9 percent to $1,675.30 an ounce this year, set for a 12th consecutive annual advance.

Twelve of 28 traders and analysts surveyed by Bloomberg expect copper to gain next week and the same amount predicted a drop. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 7.2 percent to $8,150 a ton this year.

Thirteen of 30 people surveyed anticipate lower corn prices next week and five were neutral, while 17 of 31 said soybeans will slide. Corn slipped 2.5 percent to $6.305 a bushel this year as soybeans climbed 14 percent to $13.7875 a bushel.

The S&P GSCI gauge of commodities fell to a two-month low this week after a Labor Department report showed U.S. employers added the fewest jobs in five months in March and on concern that Europe’s debt crisis may deepen. Chinese Premier Wen Jiabao cut the nation’s economic growth target to 7.5 percent last month, the lowest since 2004.

“Chinese indicators continue to point towards a continued slowdown, even though the soft landing still looks like the most probable alternative,” said Filip Petersson, an analyst at SEB AB in Stockholm. “There could be some way left to fall.”

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