Raw sugar futures fell Tuesday, pressured by a crumbling premium between white and raw sugar as a global glut of sugar has spread into the refined market.
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The New York market of raw sugar has recently stabilized as Brazilian mills are increasingly switching to ethanol from sugar and the Indian monsoon came in weaker, hurting sugar output. But white sugar futures in London have fallen in recent months, driving down the price difference between refined and raw sugar to its lowest level since February 2015, according to FactSet.
Raw sugar for October delivery dropped 1.9% to settle at 14.02 cents a pound on the ICE Futures U.S. exchange.
Sugar fell in spite of a bullish report by Brazil's cane industry group UNICA, which said Tuesday that mills in Brazil's center-south region crushed less cane and produced less sugar than expected in the second half of August.
Mills in the world's largest sugar-producing region crushed 38.91 million metric tons of cane in the second half of August, a decrease from 45.28 million tons in the first half. Sugar production fell to 2.53 million tons, compared with 3.15 million tons in the previous two-week period and an average expectation for 2.82 million tons.
After sugar prices spent nearly two months hovering below 14 cents a pound, many mills in Brazil have switched to produce ethanol, which pays better than sugar. Sugar mix was reported to be at 46.9%, even lower than S&P Platts Kingsman's estimate of 48.9%.
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"There's some selling in the whites, which has created a drag on the raws," said Michael McDougall, director of commodity agency at Societe Generale. "White sugar producers have got themselves into a bind," as they have waited too long to sell their refined sugar.
Some analysts said that protectionist policies adopted by China and India have distorted the global sugar market, creating a surplus in the export market and leading producers to suffer from low prices.
In China, a sharp decline in sugar production in recent years led the government to impose heavy tariffs on sugar imports to protect the country's less-efficient and uncompetitive sugar industry. As a result, China's sugar imports fell this year, helping liquidate the country's huge stockpiles and boost domestic production. White sugar prices in China are currently trading at a 165% premium to London prices, and the high domestic prices would continue to stimulate acreage expansion, analysts say.
New Delhi early this month allowed imports of 300,000 tons of raw sugar to ease short-term tightness in the country, but "controlled and small imports would not be sufficient to ease the surplus in global markets," wrote Rajesh Singla, an analyst at Societe Generale, in a Monday research note.
In other markets, cotton futures for December fell 4.2% to settle at 69.11 cents a pound after the U.S. Department of Agriculture published its latest monthly estimates of cotton production, consumption and stocks. In the report, U.S. cotton production was raised 1.2 million bales to 21.76 million bales, compared with an average estimate of 20.59 million bales, according to a Wall Street Journal survey of analysts.
Some analysts are skeptical whether the USDA has taken into account the impact of Hurricane Harvey on the crop in Texas. Louis Rose, founder of Rose Commodity Group, estimated that about 400,000 bales of cotton were lost in Harvey.
Orange juice for November was up 3.8% to close at $1.5715 a pound, cocoa for December added 0.9% to close at $1,951 a ton, and arabica coffee for December rose 2.4% to $1.3505 a pound.
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(END) Dow Jones Newswires
September 12, 2017 15:13 ET (19:13 GMT)