Sugar futures rose to their highest level in two months Monday with news out of Brazil that traders anticipate will lead cane producers there to convert a smaller percentage of cane to sugar.
Raw sugar for October was up 3.9% at 14.93 cents a pound on the ICE Futures U.S. exchange, on track for its highest close since May 30.
Sucden Financial Research said that while much of Monday's bounce was a result of technical buying and short covering, an announcement by the Brazilian government late Friday that it would reduce the tax on ethanol lured buyers.
Brazil is the world's largest producer of sweetener and cane producers can convert cane to either sugar or ethanol. The lower tax rate led traders to believe that there will be more demand for ethanol.
"It is expected that on a forward basis, ethanol will recover its price advantage towards the end of 2017," said Nick Penney, senior trader at Sucden.
The last two reports out of Brazil about the progress of the harvest have shown a larger-than-anticipated percentage of cane going to ethanol.
Societe Generale said in a note Monday that sugar is oversold and vulnerable to short covering by traders.
"Although many things have to happen to bring the sugar market in NY to a more lucrative level, we are fully convinced that we have already seen the year's low," Archer Consulting in Brazil said in a note.
Plummeting oil prices or a strong depreciation of the Brazilian real would reverse that assumption, the firm said.
In other markets, cocoa for September was up 0.5% at $2,070 a ton, arabica coffee for September was up 0.4% at $1.3845 a pound, frozen concentrated orange juice for September lost 2.3% at $1.332 a pound and December cotton was off 0.2% at 68.69 cents a pound.
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(END) Dow Jones Newswires
July 31, 2017 11:06 ET (15:06 GMT)