On Aug. 7, sugar futures reached a 28-year high, just under 20¢ a pound, levels not seen since 1981. Analysts say a monsoon in India and a poor sugar harvest in Brazil, as well as underlying bullish fundamentals, were the reasons for the spike.
“The monsoon [in India] is really driving the market. The Indians normally produce enough sugar for their own consumption and for exports and they’ve become big importers this year,” says Jack Scoville, vice president at Price Futures Group, adding, “People thought there would be more sugar in Brazil than there seems to be, so that tightens up the situation even more. That’s creating the up move and I expect it to continue.” He predicts a level of 23.50¢ a pound by September.
“Since we cleared a new high in August, the market has found nothing but buyers,” says Darin Newsom, senior analyst at DTN. “For the 2010 contracts, you have an inverted situation where the nearby contracts are all higher priced than the deferred contracts. The underlying supply and demand long-term is still quite bullish. You have bullish supply and demand and you’ve got spec money coming into this market on the idea that it’s going to continue to go up. You’ve got both sides of the market buying in and pushing it higher.” He expects sugar to reach 25-30¢ a pound in September.