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Tags: Sugar | Traders | Bearish | glut

Sugar Traders Most Bearish in Three Months on Glut

Friday, 21 October 2011 04:20 PM EDT

Sugar traders and analysts are the most bearish in almost three months on mounting speculation that supply will outpace demand for the first time in four years, creating a glut that may persist through 2013.

Nine of 13 people surveyed by Bloomberg expect raw sugar to drop on the ICE Futures U.S. exchange next week, the highest proportion since the end of July. The last time they were that bearish, prices fell 7.6 percent the following week. Speculators cut their bets on higher prices by 49 percent since the end of July, Commodity Futures Trading Commission data show. Traders also expect lower refined-sugar prices next week, and gains in gold, copper, corn and soybeans, separate surveys showed.

Sugar already fell 26 percent since reaching a three-decade high in February as the surge encouraged farmers to plant more cane. UBS AG, Macquarie Group Ltd. and Barclays Capital are among banks anticipating a surplus in the next 12 months. Kingsman SA, a researcher in Lausanne, Switzerland, expects the biggest glut since 2002-03, when prices dropped 25 percent.

“If you are a strategic buyer and not a speculator, you’re going to wait for the market to go down because everyone is expecting a surplus,” said Renier Swanepoel, an analyst at UBS in Johannesburg who expects prices to drop as much as 17 percent by the first quarter. “The only question is how big.”

Record Production

Raw sugar declined 17 percent on the ICE Futures U.S. exchange this year, heading for its biggest annual drop since 2006. Prices rallied as much as 18 percent to 28.35 a pound in the three weeks to Oct. 17 on concern flooding would ruin crops in Thailand, the second-biggest exporter after Brazil. Futures retreated to 26.66 cents by 1:01 p.m. in New York yesterday after Thai Sugar Trading Corp., the nation’s biggest shipper, predicted record cane output and no delays in exports.

White sugar traded on NYSE Liffe in London fell 12 percent this year, on track for the biggest annual drop since 2002. The Standard & Poor’s Agriculture Index of eight commodities declined 13 percent and the MSCI All-Country World Index of equities slid 11 percent. Treasuries returned 7.9 percent, a Bank of America Corp. index shows.

Global output will exceed demand by 6 million metric tons in the marketing year that began this month, equal to about seven months of U.S. demand, UBS wrote in a report yesterday. Macquarie anticipates a 5.32 million-ton glut, Kingsman 8.4 million tons and Barclays Capital 4.5 million tons. The London- based International Sugar Organization, whose members include 86 countries, says the surplus may reach 4.2 million tons.

Fewer Cargoes

World production will expand 4.9 percent this marketing year, more than twice the anticipated 1.5 percent gain in consumption, Macquarie’s analysts wrote in a report Sept. 22. The bank also expects a 4.54 million-ton surplus in 2012-13.

Russia, once the world’s biggest importer, will buy 56 percent less sugar this year as domestic output rebounds, C. Czarnikow Sugar Futures Ltd., a London-based trader of the commodity, wrote in a report yesterday.

Goldman Sachs Group Inc. expects a 10 percent drop in raw- sugar prices in the next six months and Barclays anticipates three consecutive quarterly declines as the surplus expands.

The predicted glut may not lower costs everywhere. The European Union is contending with a second consecutive annual shortage because of quotas on production combined with trade barriers that limit imports. The supply deficit may reach 1.1 million tons in the next 12 months, according to the Committee of European Sugar Users, whose members include Nestle SA, Unilever and Kraft Foods Inc.

Import Duties

As world prices fell this year, European costs rose to a two-year high. The EU, once the second-biggest exporter, spent about 5.2 billion euros ($7.1 billion) since 2006 to curb output after the World Trade Organization ruled it was dumping subsidized sugar. The 27-nation bloc maintained import duties to protect farmers.

Supply is also tight in the U.S. and stockpiles will contract this year to the lowest since records began in 1960 after rain and freezes damaged the beet crop, according to the U.S. Department of Agriculture. Domestic prices were last at 37.5 cents a pound, a 41 percent premium to international contracts. Sugar is the only major agricultural commodity produced in the U.S. that is subject to import quotas.

Commodities are heading for the weakest annual performance since 2008, when prices slid 43 percent, as investors speculate that slower economic growth will erode demand for raw materials. About $9.5 trillion has been wiped off the value of global equities since May. European leaders are meeting this weekend in Brussels to debate a plan to boost the region’s bailout fund as they seek to contain the debt crisis. The outcome of those talks may dictate where prices head next week.

Summit Outcome

Copper, viewed by some analysts as an economic bellwether because it’s used in everything from cars to homes to electrical appliances, is “hardly predictable” right now because so much depends on the outcome of the summit, said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.

Six of 11 traders and analysts surveyed by Bloomberg expect the metal to advance next week. Copper for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 30 percent to $6,735 a ton this year. It fell to a 14-month low of $6,635 on Oct. 3.

Should Europe’s debt crisis worsen, gold may benefit as investors seek to protect their wealth. Fourteen of 24 traders and analysts surveyed by Bloomberg expect bullion to appreciate next week. They’ve been bullish since late September, the longest period since mid-July. Futures gained 14 percent to $1,614 an ounce in New York this year, heading for an 11th consecutive annual advance.

‘Slower Pace’

Thirteen of 26 people surveyed anticipate gains in corn and 15 of 27 expect the same for soybeans. Corn rose 2.2 percent to $6.43 a bushel in Chicago this year while soybeans fell 13 percent to $12.18 a bushel.

“Some of the uncertainty affecting markets right now will be with us for remainder of year,” said Michael Widmer, head of metals research at Bank of America Merrill Lynch in London. “I believe that commodities are supported. The global economy continues to expand albeit at a slower pace.”

© Copyright 2023 Bloomberg News. All rights reserved.

Sugar traders and analysts are the most bearish in almost three months on mounting speculation that supply will outpace demand for the first time in four years, creating a glut that may persist through 2013. Nine of 13 people surveyed by Bloomberg expect raw sugar to drop...
Friday, 21 October 2011 04:20 PM
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