Even as prices plumb nearly three-year lows, investors are betting that they will drop even more. Positions that profit when sugar prices fall hit an all-time high of 212,419 contracts—worth about $4.5 billion—on April 9.
Sugar will expand global supply already forecast by the International Sugar Organization to reach a record this season. Producers from Russia to Thailand raised output after prices averaged the most in three decades in 2011.
Raw-sugar futures fell 19 percent to 18.95 cents a pound this year on ICE Futures U.S. in New York. Prices, which reached 36.08 cents in February 2011, the highest since 1980, may drop to 18 cents by the year-end.
While cereals are scarce this year and see their prices drastically rising, sugar is abundant which has been dragging its price down since last summer. Sugar price fall has even accelerated this past month, especially since production in Brazil could bring a big surplus next spring.
Futures dropped to a two-year low in New York last week after drier weather in Brazil, the world’s biggest producer of the sweetener, accelerated harvesting, while improvement in rains last month in India, the second- largest grower, improved crop prospects. The sweetener has declined 31 percent in the past year on expectations that global supplies will top usage.
According to FAO, global food prices have bounced back by 6% in July after several months of decline. This increase is mainly due to soaring prices for cereals and sugar: over 17% for cereals and 12% for sugar. The FAO food price index has rebounded significantly in July to 213 points vs. 201 in June.
The Rome-based institution said in a statement that the increase was mainly due to a jump in prices for cereals and sugar, and more moderate increases of oils and fats. International prices of meat and dairy products remained more or less unchanged. If this trend continues, the February 2011 peak of 238 points that started in July 2010 could be rapidly reached. It could be similar since in both cases, soaring grain prices were the original trigger.
Sugar prices have dropped further this week, cancelling the increase from last week.
The main factors are the economic climate far from being the most euphoric, a stronger dollar and a very significant production surplus.
Wednesday, prices have dropped to 548.20 dollars per tonne in London and 19.36 cents per pound in New York, which corresponds to the lowest prices since August 2010.
Cotton has pulled back 17% from the all-time record set in early March, and sugar is down 34% from its multidecade high in February. Lead and zinc have tumbled in recent weeks after shooting up in the second half of 2010. Copper has shed 6% this year.
The wild ride continued early today, when spot silver suffered one of its worst drops on record, falling 12% in 11 minutes at its most severe. It opened at $47.863 an ounce, rose to $48.150, then in 20 minutes fell to $42.210 before stabilizing. The selloff also hit spot gold, which fell 2.2% in just over a half-hour to $1,542.61 an ounce from $1,576.52.
The months-long rally in commodity prices has sparked fears it could ignite inflation or cripple consumer spending. But a surprising trend is now sweeping the markets for some key materials: Prices are falling.
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Raw sugar for July delivery dropped 0.7 percent to 23.24 cents a pound on ICE Futures U.S. in New York yesterday. The most-active contract climbed to 36.08 cents a pound on Feb. 2, the highest level since 1980.
Sugar output in Thailand, the biggest exporter after Brazil, will exceed a forecast to reach a record after rainfall increased yields, boosting shipments to an all-time high, according to the Office of the Cane & Sugar Board.
Increased supplies from Thailand may pressure global prices that tumbled 36 percent since reaching a three-decade high in February as output climbs in Brazil and India, the world’s biggest producers. Sugar is the worst performer on the Standard & Poor’s GSCI Spot Index of 24 commodities this year, helping cool global food prices that the United Nations estimates fell in March from a record.
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