Raw sugar futures were on track for a third session of gains Wednesday, as a weak dollar against the currencies of sugar producing countries lures buyers.
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Raw sugar for July rose 0.9% to 16.03 cents a pound on the ICE Futures U.S. exchange.
Brazil is the largest producer of the sweetener, and a weaker dollar against the real means dollar-denominated goods like sugar will recoup fewer reais for producers once they are sold on the world market. That encourages producers to hold back on sales.
"The strong close yesterday added to the weakening USD (and stronger real) seems to have persuaded the market that the lows will not after all be tested and that the profit potential is more on the upside," said Nick Penney, senior trader at Sucden Financial Research.
Mr. Penney said the current bounce in sugar is likely short lived, and that the July contract will need to close Wednesday above 16 cents to confirm a change in trend. Sugar prices have tumbled 23% since February on expectations that global supply will outstrip demand in the next season, after a two-year deficit.
Societe Generale said in a note that sugar traders should look out for a correlation between June crude oil and sugar, with crude breaking above $50 a barrel. Higher prices for oil could encourage sugar producers to turn more heavily toward the fuel market, converting a larger percentage of cane to ethanol.
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While Brazil's industry group Unica said in its latest report that the country's sugarcane harvest was off to a slow start, the group also confirmed that the percentage of cane used to produce sugar at mills in the country's key center-south region has been higher than analysts had expected.
According to Unica, the percentage of cane used to produce sugar came in at 43% during the reporting period, higher than Platts' forecast of 42.3%. A year earlier, the mix was 42.9% toward sugar.
In other markets, cocoa for July was up 0.4% at $2,043 a ton, arabica coffee for July lost 0.7% to $1.305 a pound, frozen concentrated orange juice for July lost 0.9% to $1.42 a pound, and July cotton rose 0.8% to 81.96 cents a pound.
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(END) Dow Jones Newswires
May 17, 2017 11:19 ET (15:19 GMT)