Give me some sugar Posted by Tracy Alloway on Feb 26 13:20.
Sugar was one of the best performing commodities up until circa November 2008, when it finally capitulated in terms of year-to-date returns.
But, it seems, the sweet stuff may be back. From Dresdner on Thursday:
Sugar prices are close again to the 4-month high recorded at the start of February, at 13.37 US cents a pound. Numerous market observers have revised their forecasts of an expected deficit on the sugar market this year downwards, some quite significantly. Sugar broker Czarnikow or the consultancy Kingsman expect a market deficit of more than 10 million tons. This week, India, the world’s second largest sugar producer, lowered its forecast for sugar production in this crop year (October to September) by 1.5 million to 16.5 million tons. This would mean a fall in production of about 10 million tons in comparison to last year. As India is also the world’s largest sugar consumer, this has huge implications on the market balance.
That would be the first deficit since the 2004/2005 season, according to Standard Chartered, which is forecasting the commodity will rise to 16 cents a pound by 2010, boosted by the deficit in combination with a weaker dollar, stronger energy prices (which should up ethanol use) and ETF inflows.
Notably however, there’s still a lot of disagreement as to the actual size of the deficit. Back to Dresdner:
On the other hand, sugar trader EDF Man believes the rise in deficit will be much smaller than expected, referring to rising sugar production in Brazil, the world’s largest sugar producer. The International Sugar Organisation (ISO) appears to share this view, as it expects a market deficit of “only” 4.3 million tons. According to the ISO, global sugar production should fall by 4% to 161.5 million tons, while demand should rise, despite the economic crisis, by 2% to 165.8 million tons.
However, they note:
Even if the market deficit is not in the double digits, the tight market situation should support a further rise in sugar prices.
FT Alphaville wonders if sugar stored in candy form counts as an investment.
