Sugar futures surged Friday as five companies took delivery of 1.5 million tons of sugar at the expiration of the May contract.
The market had anticipated a big trade house to take delivery of physical sugar, an increasingly common practice over the last two years as Singapore-based Wilmar International Ltd. has emerged as a big player in the sugar market willing to push short-positioned trade houses into the market. But the delivery was larger than expected.
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The May contract rose 5.7% to end at 16.04 cents a pound, the biggest daily percentage gain for sugar since Jan 3.TheJuly contract (the most actively traded) rose 4.5% to end at 16.13 cents a pound as traders in the May contract moved into new positions in July to avoid getting involved in a physical sugar settlement.
"This looks like a mini squeeze. Someone not intending to delivery sugar suddenly finds himself short," said Robin Shaw, analyst at Marex Spectron.
Wilmar, which has taken 6 million tons of sugar since 2015, took another half a million tons on Friday as the May contract expired.
But more than one sugar company can play the delivery game. Wilmar emerged as one of five sugar buyers at the end of the day, with ED&F Man Holdings Ltd. receiving 10,101 lots, Wilmar 9,946 lots, Alvean 4,124 lots, Louis Dreyfus Commodities 2,953 lots and Bunge Ltd. 2,823 lots from deliverers Cofco and Toyota Tsusho Sugar Trading. Each lot weighs 112,000 pounds.
The moves by Wilmar have confounded other players in the market who have said the play is either a bet to drive up prices by inciting demand or a strategy for snatching up cheap sugar. Sugar futures have dropped more than 20% since February and likely drove other buyers to join in, analysts said.
Mr. Shaw said the large physical deliveries of sugar in the futures market aren't indicative of any fundamental change in the outlook for sugar.
Agrilion Commodity Advisers said with open interest still at 30,404 lots (the equivalent of 1.5 million tons of sugar) as of Thursday night's close, market expectations were for a delivery from 750,000 to just over 1 million tons of sugar.
Analysts have opined that Wilmar's play in the market as a seller of physical sugar is to drive up bullish bets for sugar.
"If you're controlling a large number of physicals, you're going to be in a stronger position than if you're someone who just trades one cargo a year and you're very much at the mercy of the market," said James Liddiard at Agrilion.
Still, analysts said that anyone taking a long position in the sugar market over the last few months will have been sorely disappointing. Sugar futures have dropped 23% since February.
In other markets, cocoa for July was off 1.5% to settle at $1,841 a ton, arabica coffee for July rose 3% to settle at $1.334 a pound, frozen concentrated orange juice for July was up 1.5% to end at$1.5835 a pound and July cotton rose 1.2% to settle at 78.87 cents a pound.
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April 28, 2017 15:35 ET (19:35 GMT)