Sugar soared Thursday, as some trade houses that were poised to deliver the sweetener appeared to have had a change of heart just two days before the expiration of the July contract.
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Raw sugar for July rose 5.3% to 13.22 cents a pound on the ICE Futures U.S. exchange. The October contract was up 5.2% to 13.42 cents.
Thursday's big jump came after a long decline in sugar prices that started in February and wiped out 40% of the value for the commodity. Sugar prices tumbled to the lowest levels in 16 months on Wednesday, as investors continued to be concerned over an oversupplied market.
Brazil's sugar cane industry group Unica said on Wednesday that center-south mills produced 2.4 million tons of sugar during the first half of this month, up 97.8% from a year ago. The production mix was 49.3% sugar to 50.7% ethanol, higher than the sugar mix that traders had expected.
Analysts said Thursday's rally was largely caused by technical reasons. The July contract, which is set to expire on Friday, still had 48,966 lots, an equivalent of 2.4 million tons of sugar, in open interest as of Wednesday's close, according to the exchange.
"This is very solid going into an expiry, and one or two people may be trying to reduce their commitment to deliver," said Michael Liddiard, a London-based analyst at Agrilion Commodity Advisers. "Trade houses are tidying up their July expiry positions."
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The July open interest was still enormous. It was 47.6% higher than the May contract, which ended up in a delivery of 1.5 million tons, second only to the record 1.9 million ton delivery in May 2015.
Relatively stronger cash market prices probably led some trade houses or mills to decide not to sell sugar to the exchange, said Michael McDougall, director of commodities agency at Societe Generale.
Fundamentally, a rebound in crude oil prices and some talk of a gasoline tax that will be imposed in Brazil triggered some short-sellers to cover their bets in the October contract, Mr. McDougall said.
Sugar traders are closely watching Brazil, as it is big enough to swing the global market. Despite a 30% drop in sugar prices from a year ago, many Brazilian mills would continue to produce sugar as they already locked in prices when they were higher.
However, with current prices now below many producers' costs, it is expected that the amount of cane devoted to ethanol production will increase, some traders said.
In other markets, cocoa for September lost 1.9% to $1,849 a ton, arabica coffee for September gained 2.6% to $1.2760 a pound, frozen concentrated orange juice for September fell 2.2% to $1.3530 a pound, and December cotton lost 0.5% to 67.29 cents a pound.
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(END) Dow Jones Newswires
June 29, 2017 12:41 ET (16:41 GMT)