Tuesday, March 23, 2010

Sugar price collapses so what?

My mate is a sugar trader and one day, a few months ago, he said there were new traders in the pit and things had started to go crazy. Next I read an article about how there was going to be a shortage in sugar. It occurred to me that the same events had occurred in the past few years with oil trading. New traders entered the market, stories filled the papers about the Saudi oil reserves being less than stated and experts said we were running out of oil. Well here is what really happened ….market makers came into the market, ran it up 230% then stepped out …and the market crashed. Well Sugar just followed the same pattern… it was run up 210% from its base value, then the market makers stepped away and guess what? Sugar price collapsed. WOW no shortage! I wonder where the market makers are headed next?


The coming Brazilian harvest and slack demand triggered selling, pushing prices down 7.1% Tuesday to a nine-month low. Here, a woman cuts sugar can in Brazil in 2008.
.Sugar prices plummeted 7.1% to nine-month lows as the coming Brazilian cane harvest and slack demand triggered selling.

Tuesday, nearby May world raw sugar on the ICE Futures U.S. exchange settled down 1.27 cents, to 16.57 cents a pound, after touching a bottom of 16.40 cents, the contract's lowest price since June 17.

Sugar prices have fallen 43% since reaching a 29-year high Feb. 1, when May futures hit 29 cents a pound. Prices had soared on expectations of diminished output for the 2009-10 crop in the world's top producer and exporter, Brazil, and the No. 2 sugar producer and top consumer, India. However, when Brazilian and Indian output turned out better than expected, sugar futures began a nose-dive.

Beverage manufacturers and confectioners have been reluctant to buy sugar at such expensive levels, and that lack of demand also has contributed to the declines. End users will wait for prices to stabilize before returning to the market, analysts said.

"At the moment, the market is coming off of its sugar high pretty badly. Today's big blowout drop will probably beget more selling," said Sterling Smith, market analyst at Country Hedging in St. Paul, Minn.

May sugar could trade as low as 15 cents to 16 cents a pound before the bearish momentum turns, Mr. Smith said.

"Every time the market bounces a little, selling comes into the market and keeps [it] from building momentum to try to correct," said Alex Oliveira, sugar broker and analyst at Newedge USA, a branch of global brokerage Newedge, in New York.

Production in Brazil is expected to ramp up quickly as the 2010 harvest begins officially on April 1. The Brazilian Sugarcane Industry Association projects sugar-cane output in the main central-south region of the country may rise 10% this season to more than 580 million metric tons.

World sugar production is expected to fall short of demand by 9.4 million tons in the 2009-10 crop year, but the balance in the 2010-11 season could be a surplus of a million tons, the International Sugar Organization said in February.

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