Sugar prices dropped Tuesday, as traders turned their focus to the prospect of a global surplus after a wild week of trading.
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Raw sugar for July delivery fell 1.6% to 15.92 cents a pound on the ICE Futures U.S. exchange.
Last week, prices had tumbled to as low as 15.34 cents a pound, the lowest in a year amid a massive physical delivery against the expired May contract, before surging more than 4.5% in one day. Volumes were thin Monday in New York as trading session was shortened due to a London bank holiday on May Day.
With regular trading hours resuming again, sugar prices rallied initially before giving back all the gains. James Liddiard, an analyst at Agrilion Commodity Advisers, noted that the bulls would like to see a couple of settlements back above the level to be convinced that the prices have stabilized.
"A failure here and a settlement below 16 cents could trigger further losses," he wrote in a note to clients.
Speculators have already been retreating from the sugar pit. In the week ended April 25, managed money slashed their net long positions for the ninth consecutive week to 13,656 contracts, putting them at just 5% of their historical net long positions hit in September 2016.
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Since February, sugar prices have been in a downward trend as expectations of significant sugar imports from India didn't materialize. Despite the sharp fall in India's sugar production, domestic consumption tumbled as a result of the government's demonetization move, hence reducing the need for imports.
In addition, the Australian Bureau of Meteorology lowered the intensity and timing of El Nino for the third consecutive time since mid-March.
"We maintain our neutral view on sugar but now have a positive bias as the sharp decline in prices from current levels might curb production in Brazil," wrote Rajesh Singla, global head of agricultural commodities research at Societe Generale SA.
Brazil's sugar-industry group Unica last week estimated farmers in the country's center-south region would harvest 585 million metric tons of sugar cane for the just-started 2017-2018 growing season. That would represent a decline from the 607.14 million tons harvested and processed in the 2016-2017 season.
At the current prices, the market hasn't assigned any premium for the much lower global stocks, Mr. Singla said. Global stock-to-use ratio is likely to fall to 16.6% in the marketing year of 2017-2018, which will be the lowest since 1986-1987.
The focus is still on India, the world's largest sugar consumer, analysts say, as India is the only place where supply is likely to fall short of demand. How much India's sugar production would be recovered, and to what extent its consumption would be normalized as the impact of demonetization fades, are the key factors for sugar's future price path, analysts say.
In other markets, cocoa for July edged down 0.2% to $1,808 a ton, arabica coffee for July was down 0.4% to $1.3520 a pound, frozen concentrated orange juice for July was down 2.4% to $1.5210 a pound, and July cotton added 0.1% to 79.06 cents a pound.
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(END) Dow Jones Newswires
May 02, 2017 13:06 ET (17:06 GMT)