Sugar Nears Its 28˝-Year High As Shortage Worsens

The Wall Street Journal reports that Sugar Nears Its 28˝-Year High, Again.

(emphasis mine) [my comment]

SEPTEMBER 30, 2009
Sugar Nears Its 28˝-Year High, Again
Wet Weather Threatens Brazil Harvest, and Prices Pierce a Resistance Point
By TOM SELLEN

World raw-sugar prices rallied 3.6% on speculative fund buying linked to concern over the delayed Brazilian cane harvest and on bullish technical price charts.

Weather-related problems have hurt sugar production in Brazil, India and Mexico, encouraging speculative fund buying and driving prices up near historic highs. Here, harvesting sugar cane in Bundaberg, Queensland, Australia, in August.

The nearby October contract on ICE Futures U.S. rose 0.81 cent to 23.46 cents a pound, while most-active March sugar climbed 0.84 cents to 24.94 cents, after rising to as high as 25.15 cents. Prices are closing in on the 28˝-year high of 26.25 cents a pound.

"This market could run even higher based on the fundamentals out there of strong demand and tight supplies overall," said Boyd Cruel, senior softs-market analyst at Vision Financial Markets.

Sugar prices hit a 28˝-year high on Sept. 1, as a much drier-than-normal monsoon season in India turned that country into a net importer of sugar from a net exporter. India is the world's second-largest producer of sugar and the largest consumer.

Worries about a reduced crop in Mexico have that nation scrambling for supplies. Now persistent,
wet weather in top producer Brazil is hurting that country's yield potential, said Jim Cassidy, a broker/analyst with Newedge Group. [crop production in 2009 has been a disaster across the board, including sugar]

Continued wet weather has kept Brazilian farmers from cutting the cane crop. The delay will likely mean that some of the crop will be left to rot in the fields, as producers will likely run out of time. Crop analysts are scaling back expectations of Brazilian production as a result.

...
Rains have continued to soak Brazil's main center-south growing region this week, with some areas seeing the wettest weather in 50 years.

Bloomberg reports that Brazil's Center South Sugar Output Estimate Cut.

Brazil's Center South Sugar Output Estimate Cut, Czarnikow Says
By M. Shankar

Sept. 24 (Bloomberg) --
Sugar production in the Center South of Brazil, the world's largest grower of the sweetener, will be 4.9 percent lower than previously forecast after wet weather disrupted the harvest, Czarnikow Group Ltd. said.

Output in the region, which makes up about 90 percent of the total crop, is estimated at 29.2 million metric tons for March to December, down from 30.7 million, London-based analyst Toby Cohen wrote in a report today. Raw sugar prices have climbed 93 percent this year. Wet weather is set to return to the Center South in the fourth quarter, Czarnikow said.

"There is a risk of production falling further still should heavy rains prove to be a problem," Cohen wrote. "Unless there is a miraculous change in the weather outlook, we see little reason to doubt that we have seen almost all the increase in sugar availability this season."

The estimated sugar cane output for Center South was lowered 2.8 percent to 530 million tons, according to Czarnikow. The Center South's sugar cane production last year was 505 million tons, according to Czarnikow.

The global supply deficit may be 10.4 million tons in the year through this month and 8.4 million tons the following year, the International Sugar Organization said on Sept. 2. India, the world's biggest consumer, has bought about 4 million tons this year, with 2.2 million tons from the current Center South harvest, the report said.

Brazil's Center South sugar production was 26.75 million tons last year, out of a total crop of 31.1 million tons, according to Czarnikow.
Brazil's total crop this year will be 33.85 million tons, down from a previous estimate of 35.35 million tons, said Peter de Klerk, a Czarnikow analyst. [There has been a lot more rain since this estimate]

More Proof of USDA insanity/dishonesty

The USDA estimate for Brazil 2009/10 sugar production is highlighted in red.

Brazil

Sugar Production

2007/08

32,100

2008/09

32,350

2009/10

36,850

Czarnikow's estimate

33,850

The Mad Economist reports about Sugar Shortage.

Sugar Shortage #2

... In the last few months, the world sugar market has changed dramatically. Although historically the world price of sugar has been far below the US price, the gap has closed considerably. Below, I show the same price chart from my prior post:



Currently, the world price is 21.84 cents/pound and the US price is 26.45 cents/pound. The world price is actually above the target market price set by farm legislation and implemented by the USDA. Ironically, the cost of the subsidy paid to sugar producers is dramatically lower in the current year.
The high world price indicates that the supply/demand relationship in the world market has shifted such that it is now a sellers market -- there is not enough sugar on the world market to supply consuming countries.

According to data from the USDA, world production of sugar declined from 166.5 million tons (metric) in the 2007/8 fiscal year to 148.7 million tons (metric) in fiscal 2008/9, a decline of roughly 10 percent. This decline has been matched by an increase in world consumption by about 1.5 percent.
What was a market that had bountiful supplies in 2007/8 now has a very tight supply/demand situation.

So, where is sugar produced:



The above chart shows sugar production for the 2008/9 fiscal year. Brazil is by far the largest producer of sugar (the above is for sugar alone, exclusive of cane used for ethanol).
India is the second largest producer, followed closely by China [Both of which have experienced severe drought]. It also turns out that India is also the biggest consumer of sugar (in total) ahead of both China and the United States.

Now the above charts shows absolute sugar production in 2008/9. The following shows the year-to-year change between 2007/8 and 2008/9.



It turns out that
the bulk in the world decline in sugar production comes from a really bad crop in India. Of the global reduction in sugar production of 17.7 million tons (metric), India accounts for 11.85 million tons (tons). In fact India has switched from being a net exporter (5.8 million tons in 2007/8) to being a net importer of sugar. The ramifications of this reduction are apparent in the world sugar market -- prices have risen dramatically.

Forbes reports about London sugar hitting record high.

SOFTS-London sugar hits record high, Brazil rain worries
09.29.09, 10:30 AM EDT
MARKETS-SOFTS/ (UPDATE 2):SOFTS-London sugar hits record high, Brazil rain worries

* Worries over rains during c/s Brazil cane harvest
* Tight sugar supp lies in Mexico

By David Brough and Nigel Hunt

LONDON, Sept 29 (Reuters) - London white sugar futures rallied over 3 percent to a record high and benchmark ICE raw sugar surged on Tuesday on worries over excessive rains during harvesting in Brazil and tight supplies in Mexico.

...
Sugar futures, which doubled this year as India swung from exporter to importer, jumped on nagging concerns over Brazilian output, and on prospects for increased demand for the sweetener from Mexico and the United States.

"If all cylinders are firing at the same time it's an explosive cocktail,"
said Nick Hungate, soft commodities trader with Rabobank in London, referring to the rally in sugar on the back of worries over supplies in Brazil and Mexico.

"The focus for me is Brazil," he added. "The weather there is persistently poor."

Hungate said, "I really doubt we've seen the highs of this market."

...
Traders also focused on expiry of the benchmark ICE raw sugar contract on Wednesday, with traders anticipating a large delivery, possibly in excess of 1 million tonnes.

My reaction: I highlighted Septermber soybean contracts and October sugar contracts as the most likely area for defaults to begin. Default on Septermber soybeans was barely avoided, but October sugar is still looking likely.

Another point is that the supply of all agricultural commodities is insufficient to meet demand for the coming year. These shortages will manifest themselves as dramatic price surges at different times during the next three months.

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4 Responses to Sugar Nears Its 28˝-Year High As Shortage Worsens

  1. Luigi says:

    That's it! I'm all in!

    Chinese are paying triple price for gold!

    http://www.chinadaily.com.cn/bizchina/2009-09/30/content_8753802.htm

  2. Matheus says:

    I think everybody will print to hold the USD print. World mass inflation...not good.

  3. Mario says:

    @Luigi

    The 1 kilo coin, which is shown at the picture, has a market price of roughly twice the gold price. But it's not every day PR of China celebrates 60 years. And they have produced way too few anniversary coins.

  4. sharonsj says:

    I've been checking out sugar prices in the stores. I noticed that Wal-Mart, which claims to have the best prices, was selling a 5-lb bag for $2.88. That's higher than some supermarkets.

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