Sugar risks price fall in early 2010 despite bullish outlook

Sugar risks price fall in early 2010 despite bullish outlook

London: Sugar futures, which doubled in price this year, could fall early in 2010 when the market wakes up to a big cane overhang from Brazil’s current harvest, despite a popular view that prices should remain buoyant.

Several delegates at this week’s International Sugar Organization (ISO) seminar felt sugar futures prices were likely to stay high due to historically low stock-to-use ratios, steady consumption, and the risks of a supply crunch in Asia.

Raw sugar futures hit a twenty eight-and-a-half-year high this year, after a rally driven by India’s strong appetite for imports, and heavy rains in top producer Brazil which cut yields.

A senior J.P. Morgan Chase and Co. executive challenged the prevailing bullish view when he said ICE raw sugar futures could fall as low as 15 cents a pound in the first half of 2010 as factories reopened in Brazil to start the 2010/11 crush.

March raw sugar futures on ICE rose 0.24 cent to close at 22.32 cents a pound on Wednesday. The market was shut on Thursday for Thanksgiving.

James Proudlock, executive director, futures and options commodities of J.P. Morgan, said in an address to the ISO seminar that the trade would wake up to hefty sugar supplies next year when Brazilian factories reopen early to crush cane.

“When the factories start the crush early to tackle the 58 million tonnes of cane left in the fields, the trade will see that there is plenty of sugar around," he said.

Traders and analysts estimate that some 40-60 million tonnes of cane will be left in the fields at the end of the 2009-10 harvest after excessive and persistent rainfall in Brazil cut yields and quality.

Andy Duff, manager of food and agribusiness research at Rabobank in Brazil, said at the ISO seminar that he expected 40-50 million tonnes to remain in the fields.

But Proudlock said a fall in raw sugar futures prices could be short-lived, because of the potential impact of a resurgence of inflation and higher interest rates on commodity markets. He said raw sugar futures could bounce up to a 30-40 cents a pound range in the next 18-24 months if inflation built up in response to the huge liquidity that has been pumped into the global economy to tackle the financial crisis.