Sugar revival catches many speculators off guard
The strong rebound in sugar futures – which continued on Monday, helped by data showing a doubling in Chinese imports – wrong-footed many speculators, who sold off heavily before the revival gained traction.
Managed money, taken as a proxy for speculators, cut their net long position in New York raw sugar futures and options by 14,710 contracts in the week to last Tuesday, the US Commodity Futures Trading Commission (CFTC), the market regulator, said.
The sell-off, equivalent to some 10% of managed money’s net length, was the largest across the commodities sector during the week, Standard Chartered said.
Indeed, many commodities, including Chicago corn, soybeans and wheat, enjoyed a marked recovery in long speculative interest.
And investors who sold off in sugar missed out on a rally which saw the sweetener gain 10% in the last three days of last week. The total week’s gains came to 11%, making it the strongest week of 2011.
The rise in sugar prices, which continued on Monday, "seems to be mainly attributed to the potential for increased Chinese sugar purchases in 2011-12 as the country looks to restock", Paul Deane at Australia & New Zealand Bank said.
Import data showed China’s sugar buy-ins more than doubling, month on month, in July to a 10-month high of 256,500 tonnes.
Mr Deane said that the boost from Chinese demand "comes off the back of a bullish fundamental outlook from International Sugar Organisation earlier in the week" pegging the forecast for the world sugar surplus in 2011-12 at 4m tonnes – higher than the group had previously predicted but well below expectations from other analysts earlier in the year of well over 10m tonnes.
Furthermore consultancy Datagro cautioned that cane crops in Brazil’s Center South – which produces about 90% of sugar in the top producing country – "continue to fall below expectations".
And second-ranked producer India, may become a "structural importer" within three years because of its rising consumption, domestically-based ITC, a large buyer of the sweetener, said.
New York’s October raw sugar lot edged 0.1% higher to 31.00 cents a pound, getting nearer a contract high of 31.68 cents a pound reached last month.
Cold on cocoa
The CFTC data also showed a continued sell-off in cocoa, amid forecasts of an increasing likelihood of a La Nina which is deemed good news for the bean, in improving West African rains, unlike for many other crops.
Indeed, managed money turned, for the first time in 2011, net short in New York cocoa – meaning that their short positions, which profit when prices fall, outweigh their long positions, which tap into rising prices.
However, speculators returned to net long positions in New York coffee, ahead of a seasonally stronger period for futures, and Chicago soyoil.
In wheat, the net short was slashed by 80% to 2,799 contracts, amid a strong revival fostered by concerns for the US spring wheat harvest, dry weather ahead of sowing winter wheat, and of rain damage to the German crop.