by Agrimoney.com
Sugar prices exploded, hitting a five-month high in London, amid growing fears for Brazilian sugar output, which is expected to fall for the first time in more than a decade, with rising oil prices seen adding a further kicker.
White sugar for August touched $821.30 a tonne in London at one point, a contract high and the best for a near-term lot since February, before losing some ground to finish at $814.80 a tonne, up 6.1%.
New York raw sugar for October closed 6.7% higher at 29.52 cents a pound.
The rises followed rumours that Unica, the Brazilian cane industry group, will unveil a bigger-than-expected drop in estimate for the crop in the key Centre South region when it unveils fresh forecasts next week. Czarnikow, the sugar merchant, and consultancy Datagro have already cut their estimates.
Unica's current forecast is for Centre South sugar output of 34.6m tonnes.
"The prominent stories on the newswires favour the bulls at the moment as analysts are all revising down the potential output from Brazil," Thomas Kujawa at Sucden Financial said in a note.
"We seem to be in a strong uptrend. Perhaps - I thought I'd never be writing this so early into the Brazil harvest, but - it's safer to buy on a dip."
'Better informed'
The rally was given further momentum by speculation of leaks in the market, after a strong rally in sugar prices last week ahead of Unica data which revealed a surprising fall in Brazilian sugar production at the end of last month.
"It is all the more difficult to go against the tide when you feel it might be being driven by people who are better informed than you," a London trader told Agrimoney.com.
Oil prices, a key influence on a crop tied to ethanol production, added further support by rising 4%, for Brent crude, which soared back above $118 a barrel, helped by retail sales and jobs data indicating that the US economy was in better shape than had been thought.
Tumble ahead?
The jump in prices defied widespread expectations that a significant drop in Brazilian sugar output had already been factored into prices, which were poised for a fall as the impact of an expected production surplus of perhaps 10m tonnes kicks in later in the year.
Rabobank analysts said in a note on Wednesday "in our view, much of the production shortfall has already been priced into the market. Prices should be poised for a correction lower."
And London-based Marex said that while most estimates of Centre South production were now at 32.5m tonnes - down 2m tonnes from previous forecasts, and a fall of 1m tonnes year on year – this was not enough to cause another season of deficit.
"So the main thrust of the bearish argument, that we are entering a period of large surplus, seems to remain intact," the broker said.
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