Sugar dives into bear market, on ideas of world output surge


Thirteen is an unlucky number for some. Make that for sugar bulls on December 13, who saw the sweetener tumbles into a bear market.

New York-traded raw sugar futures for March delivery tumbled by 3.4% to settle at 189.60 cents a pound – a five-month closing low for a spot contract.

The drop took to 22% the drop in sugar prices from an early-October high – so meeting both of the usual criteria for signalling a bear market. That is, a drop of more than 20%, over at least two months.

'Post a new record'

The latest plunge came despite some reassurance by Rabobank that market dynamics, including "the prospect of continuing tight market conditions in the immediate future", should prevent "the recent decline in sugar prices from becoming a rout".

Still, the bank cut its estimate of the world sugar production deficit in 2016-17, and highlighted a "preliminary consensus" in the market of output balancing, or potentially exceeding, demand next season.

Right on cue, Sucden Financial followed up by forecasting an output surplus of some 1m tonnes in 2017-18, backed by a surge in production, led by increase in the European Union and India, which will see its output soar by 5.0m tonnes to 27.5m tonnes, the trading house believes.

In western India, where cane plantings "for the 2017-18 crop are ongoing… the harvested area should increase significantly and (subject to the next monsoon), Maharashtra and Karnataka could produce 14m tonnes in total, paving the way for a bumper Indian crop," Sucden said.

Overall, world 2017-18 sugar output "might be 9m tonnes above 2016-17 and post a new record".

Record forward sales

As an extra setback, there is a growing idea that Brazilian producers have reacted to the latest pullback in the real by raising forward sugar sales. (A weaker real raises the value, in local terms, of assets priced in dollars.

According to Agrilion Commodity Advisers, some reports suggest that Brazilian producers "are further ahead with their 2017-18 pricing than 12 months ago with their 2016-17 pricing".

In fact, Archer Consulting as estimated that mills have priced 35.6% of their exportable sugar production for 2017-18 – a record pace of forward selling for the time of year.

And the pace would have been stronger still, Archer said, if some smaller mills which price solely through trade houses had not been restricted in the amount of forward selling they are permitted to undertake.

Cash market help

Producer selling has been an issue for the corn market too, although this time in a more bullish context, with comment on the lack of pricing by US growers.

"Corn has slowly, but surely, returned to the top end of its recent trading range in accordance with cash trader across the country," said Tregg Cronin at North Dakota-based Halo Commodity Company.

"For weeks, cash markets have been suggesting there wasn't enough corn hitting the pipeline for whatever reason, and it would appear futures are finally taking cues from cash and spreads."

Chicago corn futures for March closed up 0.3% at $3.61 a bushel, their best finish in a month, and setting camp at last back above the $3.60-a-bushel mark, which had appeared a technical ceiling.

Chinese vs Argentina

However, soybeans failed to follow suit, ending 0.3% lower at $10.28 a bushel in Chicago for January delivery, undermined by growing ideas of moisture relief for Argentina's dryness-tested crop.

"The soybean complex is being pulled higher by the higher soymeal in China," said Darrell Holaday, referring to strength in soymeal prices spurred by shutdowns at several Chinese crushing plants on environmental grounds.

But the complex "is not holding rallies because of the improved moisture outlook for Argentina. In addition, Brazilian soybean conditions simply get better every day".

MDA said that in Argentina's soybean belt, while "dryness will continue to build this week, notable improvements are still expected next week".

Halo's Tregg Cronin said that "internationally, everyone is watching the rain event forecast for Argentina this coming weekend which will be critical for staving off dryness concerns".

'Some winterkill possible'

It was wheat's turn this time to be piggy in the middle, ending unchanged after a session which saw it recover from early losses to at one stage post decent gains.

There remain worries over the US winter wheat crop as cold temperatures grip the country.

In the Plains hard red winter wheat region, "another round of cold is expected next weekend, and some winterkill will be possible in north central areas" MDA said.

Meanwhile, in the Midwest, soft red winter wheat region, "some spotty winterkill will be possible in west central Illinois and south western Iowa" thanks to cold temperatures this week.

CHS Hedging said: "Chilly temperatures are worrying traders that there could be the possibility of winterkill in the plains causing a slight uptick in prices."

Strong French plantings

Still, elsewhere French data, showing winter wheat sowings up (marginally) to their highest since at least 1991-92, underlined the broadly decent outlook for global 2017 output, after a record 2016 crop.

Richard Feltes at RJ O'Brien said that while "there is elevated winterkill risk for the west central US hard red winter wheat belt… traders note that the US is the only major northern hemisphere producer that will sow lower winter wheat acres".


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