Sugar traders are the most bullish since October on speculation that the slump in prices to the lowest in 2 1/2 years will spur Brazilian millers to make more biofuel and less of the raw sweetener from cane.
Ten analysts surveyed by Bloomberg this week expect prices to rise next week, while five forecast declines and one was neutral, making the proportion of bulls the highest since Oct. 26. The improving outlook is after sugar fell to 17.67 cents a pound on Feb. 15, the lowest since August 2010. Brazilian ethanol on Feb. 19 traded at the highest premium to sugar since April 2011, according to Kingsman SA, a Swiss research company.
Speculation that sugar will be in surplus for a third year has kept the sweetener in a bear market since September. The drop in prices makes it more profitable for millers in Brazil, the biggest producer, to use more cane to make ethanol instead of raw sugar when harvesting starts in April. More biofuel would curb sweetener supply at a time when Brazilian ports are becoming more congested and may slow supplies for export.
“Millers are likely to make more ethanol when the harvest starts,” said Marcos Mine, a risk manager at Usina Alta Mogiana S/A, a miller in Sao Joaquim da Barra, Brazil. The company will turn 40% of its cane into ethanol this year, up from 32% last year, he said. “Near 18 cents a pound, we have already seen that demand starts to emerge.”
Raw sugar fell 6.8% to 18.19 cents on the ICE Futures U.S. exchange in New York this year, extending two years of declines. The Standard & Poor’s GSCI index of 24 commodities added 1.7% since the start of January and the MSCI All- Country World Index of equities rose 3.7%. Treasuries lost 0.8%, a Bank of America Corp. index shows.
Hydrous ethanol, used to power Brazil’s flex-fuel cars, was at 20.32 cents a pound in sugar equivalent-terms on Feb. 20, Patricia Luis-Manso, ethanol analyst at Lausanne, Switzerland- based Kingsman, said by phone yesterday. That’s 12% higher than raw sugar futures traded on ICE.
The ethanol premium to raw sugar was 2.1 cents a pound on Feb. 19, the highest since April 26, 2011, said Alessandra Rosete, an analyst at Kingsman in Santos, Brazil. On Feb. 20, it fell to 1.97 cents a pound, she said.
Hydrous ethanol rose 10% in Brazil this year, Luis-Manso said. Prices gained as demand increased because of a jump in gasoline prices in Latin America’s largest economy, Christoph Berg, managing director at Ratzeburg, Germany-based F.O. Licht GmbH, said by phone yesterday.
The amount of sugar waiting to be loaded at the main ports in Brazil was 1.48 million metric tons as of Feb. 20, according to Recife, Brazil-based shipping agency Williams Servicos Maritimos Ltda. That compares with 1.4 million tons a week earlier and 396,620 tons on Feb. 15 last year, the data showed. Ports are becoming more congested with grains, which may slow supplies for export when the cane harvest starts.
As many as 174 vessels were scheduled to load 9.9 million tons of grains and oilseeds at Brazil’s ports as of Feb. 20, according to shipping agency Unimar Agenciamentos Maritimos Ltda. and consultancy SA Commodities in Santos. That compares with 84 ships carrying 3.87 million tons a year earlier, the data showed.
Lower prices mean farmers in some countries such as India and Ukraine may produce less sugar and seek better returns in other crops, Kingsman said in a report e-mailed Feb. 1. The company said the global glut will fall 51% in the 2013- 2014 season starting Oct. 1.
Output in Brazil’s center south, the country’s biggest growing region, will still climb to a record next season, according to Kingsman. And when the harvest starts, ethanol prices will probably fall, said Kingsman’s Luis-Manso.
“Ethanol being above sugar is for specific reasons, but prices will fall when crushing starts,” she said. That’s because the cane at the early part of the harvest usually contains less sucrose so millers make more ethanol.
Global supply will top demand by 6.6 million tons in 2012- 2013, boosting stockpiles to 66.02 million tons, the most in five years, Rabobank estimated in a report e-mailed Feb. 14.
Weather in the past two weeks was favorable for cane fields in Brazil’s biggest growing region, Marco Antonio dos Santos, an agronomist at Sao Paulo-based weather forecaster Somar Meteorologia, said in a report e-mailed Feb. 20. Soil moisture levels are creating “excellent conditions” for growth and sugar concentration in the plant, he said.
Money managers held a net-short position of 25,301 futures and options on raw sugar traded on ICE as of Feb. 12, the most since September 2007, U.S. Commodity Futures Trading Commission data show. That’s the fourth straight week that they’ve bet on a price drop and compares with a net-long position of 143,577 contracts on Feb. 28 last year.
While sugar slid 50% from a 30-year high of 36.08 cents set in February 2011, current prices are about 11% below the average over the past five years. Goldman Sachs Group Inc. said in a Feb. 19 report that it expects the commodity to trade at 18.50 cents in three months and rise to 19 cents in a year’s time.
The premium for white, or refined, sugar over the raw variety rose to the highest since October on Feb. 18, according to data compiled by Bloomberg. White sugar traded in London is down 3.6% at $505 a ton this year, less than raw sugar’s decline. That may indicate buyers are taking advantage of low prices, said Nick Penney, a senior trader at Sucden Financial Ltd. in London.
In other commodities, 15 of 29 people surveyed anticipate higher corn prices next week and nine said the grain will fall, while 14 of 28 said soybeans will rise and 11 expect lower prices. Fourteen of 28 traders predicted higher wheat prices and 10 were bearish. Corn lost 1.3% to $6.8925 a bushel this year as soybeans gained 4.8% to $14.7775 a bushel in Chicago. Wheat is down 6.2% at $7.30 a bushel.
Twelve of those surveyed said copper will climb next week, 11 predicted a drop and two were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, slipped 1.6% to $7,806 a ton this year.
Sixteen of 31 traders surveyed said gold would fall next week and nine were bullish. Bullion slid 6 percent to $1,574.75 an ounce in London this year, reaching a seven-month low of $1,555.55 yesterday.
The metal rallied the past 12 years, the best run in at least nine decades, as nations from the U.S. to Japan pledged more stimulus to boost economic growth. While the Federal Reserve said Jan. 30 it would continue buying $85 billion in monthly bond purchases, minutes of that meeting released Feb. 20 showed policy makers were divided about the program.
The S&P GSCI raw-materials gauge slid to a four-week low yesterday and is down 2.7% this week. The measure had reached the highest since September on Feb. 13 and global equities set a four-year high two days ago on mounting confidence that the global economy is improving. The dollar rose to a five-month high against six major counterparts today, making commodities priced in the greenback more expensive in terms of other currencies.
“The Fed minutes definitely had a significant impact on commodity markets,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm. “This is actually the first real test of the optimistic sentiment that has dominated markets since the beginning of the year.”