Sugar’s Still Sweet
Sugar has already been the star performer among agricultural commodities in 2009, but Risk Watchdog believes that the year-long ascent in prices could have further to run. Sugar began the year trading around USc14.00/lb region, but by September, had rallied all the way to USc26.00/lb. Since the summer, prices have edged lower as investors hesitated and large importers delayed tenders. However, my colleagues at BMI have hung on to their bullish view and waited for a further leg up in prices.
This patience appears to have paid off, with sugar prices making a dramatic upside break in recent trading. Sugar has rallied 15% since December 10 to currently trade at USc25.50/lb. BMI’s long-held bullish bias has been underpinned by a firm set of underlying market fundamentals, chiefly centred on India:
- India is the world’s largest consumer and second largest producer of sugar.
- Indian sugar production collapsed in 2009, dragging the international sugar market into a record 8.8mn tonne deficit.
- It was widely anticipated that production in India would recover strongly in 2010. However, this year’s weak monsoon period has limited the potential for a rebound in sugar production.
- Therefore, Risk Watchdog now anticipates a second consecutive global deficit in 2010, which should really squeeze global sugar reserves.
- More recently, concerns over Brazilian sugar production in 2010 have emerged, adding to the bullish outlook for prices.
Given the volatile nature of sugar prices, my colleagues at BMI do not rule out even further gains, potentially to USc30.00/lb and beyond. After all, sugar prices may be testing 28-year highs, but they remain significantly below the 1980 peak of USc45.75/lb peak and pale in comparison to 1974’s historic high of USc66.00/lb.