by Agrimoney.com
The sugar price correction may be close to running its course, Rabobank analysts said, even as futures in the sweetener set a fresh eight-month low amid a broad commodities liquidation.
New York's near-term futures contract, for July delivery, at one point hit 20.50 cents a pound on Thursday, down 40% from a 30-year high hit in February as the sell-off in raw materials continued.
However, while prices could fall below 20 cents a pound, such a fall would not be "sustainable", Rabobank analysts said, ruling out a drop to the levels of 13 cents a pound reached a year ago.
"Despite the current downward inertia, further price corrections could be tempered."
'Compelling case to buy'
One reason for hope was the dearth of speculators with long positions in the crop, meaning pressure from liquidation on that front was limited.
The net long position in New York sugar futures held by managed funds, a proxy for speculators, has fallen by 37% in five weeks to the lowest since March 2008, regulatory data show.
While speculators may continue to sell, they may come up against increasing buying pressure from investors viewing lower prices as a "buying opportunity".
"As many investors want to take advantage of emerging market demand in commodities and use commodities to hedge against inflation and currency fluctuations, there could be a compelling case to buy sugar," Rabobank said.
Incentive for an incentive
A second was the shape of the futures curve which, in pricing March 2012 futures well above those of October next year, was suggesting that "the market may be more concerned about supply next year", in providing an incentive for buyers to delay purchases.
The relative pricing "suggests that while supply is currently abundant, worries persist about the fundamental balance sheet", the bank said.
Indeed, high prices were needed to encourage sugar output in 2012-13 to underpin supplies.
"It is important that prices do not fall below levels that would discourage sugar production, whether that means the planting of sunflower instead of beet in Europe, cavassa instead of cane in Thailand, or production of ethanol instead of sugar in Brazil," Rabobank said.
"In our view, the low end‐price level that will ensure adequate inventive for suppliers in the new year is near the 20 cents a pound level."
'End of a bull run'
The decline in sugar prices has been attributed to improved hopes for supplies, with Thailand, the world's second-ranked sugar exporter, expected to achieve record output of 9.0m tonnes in 2010-11.
Indonesia is forecasting a 16% rise to 2.6m tonnes in sugar output, while top exporter Brazil is gearing up for peak production.
ABN Amro said that the sugar market "has the feeling of coming to the end of a bullish period".
New York's July contract stood at 21.00 cents in late deals, down 1.6% on the day. London white sugar for August closed down 1.7% at $582.30 a tonne.
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