Adverse weather conditions in India and Brazil cause a sugar deficit / Photo from www.gogetnews.info
Hedge funds that bet big on a sugar rally are being rewarded with the biggest advance for the commodity since 2013 amid a looming global shortage of the sweetener, according to Bloomberg.
Sugar futures in New York climbed 16% over the past three months, the biggest such gain since 2013. Prices are rebounding after reaching a seven-year low in August, spurred by declines for Brazil's real that encourage exporters to increase shipments that fetch dollars in return. Since then, declines for the South American currency have eased, while dry weather is posing risks to the nation's crop, Bloomberg wrote.
The International Sugar Organization predicts that after five years of surplus, demand will outstrip production in the season that started this month. The deficit will more than double to 6.2 million metric tons the next year, the group said in September.
Prices have jumped 11% this month, the most among the 22 components of the Bloomberg Commodity Index, a measure of returns, Bloomberg wrote.
Money managers boosted their net-long position by 33% to 117,090 futures and options contracts in the week ended Oct. 13, data from the U.S. Commodity Futures Trading Commission show. That's the highest since July 2014. Short holdings have declined in seven of the past eight weeks.
According to Bloomberg, a strengthening El Nino weather pattern is posing a threat to output in Australia just as production declines from mills in India to Brazil, the world's top grower and exporter.
In Brazil, after too much rain disrupted gathering earlier this season, dry conditions are now threatening next year's harvest, which could worsen the global deficit. At the same time, cane collected this year has had reduced sucrose content, spurring mills to turn more of the crop into ethanol, rather than sweetener. Only about 42% of the crop this season has been processed into sugar, down from 44% this time last year, industry data show.
The Indian Sugar Mills Association said Sept. 28 the nation's production will drop 4.6% to 27 million tons in the 12 months started Oct. 1. A stronger El Nino would probably bring a lack of rain to the country and further decrease output. China's production could drop to the lowest in decade, while dryness will also cut supplies in Central American nations and South Africa, according to Tom McNeill, the director of Brisbane, Australia-based Green Pool Commodity Specialists.