Sugar continued to rise Thursday, extending its gains to a fourth-consecutive session, as the resolution of a longstanding sugar spat between the U.S. and Mexico helped halt the aggressive selling in the world sugar market, at least for now.
Raw sugar futures for July delivery added 1.4% to settle at 14.40 cents a pound on the ICE Futures U.S. exchange. With Thursday's gains, sugar futures posted their longest winning streak in 2017.
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This year so far, sugar was among the worst-performing commodities as the outlook for a global surplus in the 2017/2018 crop year drove world sugar prices down by as much as 35% from their recent highs in February. Money managers, as a group, recently have turned net short on sugar, betting prices will drop further.
"The market has obviously technically oversold recently so some form of consolidation and reaction is to be expected," wrote Nick Penney, a senior trader at Sucden Financial Research, in a note to clients.
The recent firmer tone in the sugar market was a result of a combination of factors, analysts said.
The sugar agreement reached between the U.S. and Mexico on Tuesday provided some support to the world prices, as it maintained the access for Mexican sugar to the U.S. market and reduced the threat of increased Mexican exports to the world market.
In Brazil, major producers such as Copersucar SA recently lowered estimates for the country's sugar production this year due to a steep drop in sugar prices.
The company cut its estimate for Brazil's center-south sugar production to 35.5 million tons from 36 million tons, arguing that mills in the region would switch to produce more ethanol instead of sugar if the fuel fetches better returns than the sweetener.
Thanks to the sharply lower sugar prices, countries such as Egypt and Iran were seen to have stepped up to import.
Weather also helped as colder temperatures were forecast for southern cane areas in Brazil while central and northern areas were expected to receive much rainfall during this month. This "may at least dissuade some speculators from adding to an already short position," Mr. Penney said.
Brazil, as the world's largest sugar exporter, could swing the global market from surplus to deficit. With 582 million tons of cane, a 2% variation means Brazil's sugar production could fall in the range between 33.3 million and 36.3 million tons, according to S&P Global Platts, which sees a surplus of 3.138 million tons for the next season.
Trading in the sugar market is expected to become more active in coming days as the front-month options are set to expire next week and some index funds have just started to roll their contracts forward into the next contract. Speculators face the choice to close out their front-month short positions or roll into the October contract.
Still, some analysts say it is hard to foresee a sustained rally of sugar prices as the Brazilian real has been weakening and other commodities are under pressure.
Despite the lower projections for Brazilian sugar output, India and Thailand, the world's two other large sugar producers, were seen increasing their output thanks to favorable weather conditions.
In other markets, cocoa for July unchanged to settle at $1,963 a ton, arabica coffee for July added 0.5% to settle at $1.2635 a pound, frozen concentrated orange juice for July gained 1.4% to close at $1.3695 a pound, and July cotton rose 1%, ending at 76.55 cents a pound.
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(END) Dow Jones Newswires
June 08, 2017 15:00 ET (19:00 GMT)