sugar back on track for new highs

Sugar sweet again as food becomes new fund fashion: By Michael
Byrnes
SYDNEY, Feb 24 (Reuters) - Sugar has beaten the odds to gain nearly one
third this year in spite of vast supplies, as investment funds pour money
into a thus-far neglected part of the commodities complex, which has come
into vogue as a hedge against inflation. In the doldrums a year ago when
world over-production collapsed prices to less than the cost of production in
some places, sugar is back on a winning roll as surpluses shrink and hedge
funds buy into an undervalued market.
Comparatively cheap sugar may have been a late-starter in the global
commodities boom which started at the beginning of 2007, but it has been
among the strongest of commodities in 2008, outpaced only by soaring platinum
.
May white sugar futures on the IntercontinentalExchange rose to an
18-month peak of 14 U.S. cents a pound on Thursday, up 30 percent this year
and over 40 percent since December, surpassing a Reuters poll forecast for a
more modest gain of around 16 percent to the end of the year.
By contrast, gold and wheat, which have both hit recent record highs, are
up 14 and 17 percent this year.
As investors pull away from shaky equity and treasury markets over fears
that the U.S. economy may tip into recession, soft commodities less exposed
to broad economic welfare like cocoa and sugar look increasingly like a good
bet. "The key is that sugar has been such an under-performer in that soft
complex. When you look at values in the grains complex, and also cotton,
sugar has been lagging behind," Greg Noonan, financial risk manager at
National Australia Bank, told Reuters.
Sterling Smith, vice president with FuturesOne in Chicago, agreed.
"Judging by the amount of fund money sitting on the sidelines right now,
seeing further money come in should not surprise anyone. I think we are well
under where we are going to go," he said. "Taking a look at where we came
from, there is plenty of upside. I'm looking for us to be trading at around
16.50 cents by July, if the crude oil market stays well supported. If we see
crude chase up to $110, you probably can amend those numbers a little
higher."

BUMPY RIDE
While some commodities have risen from peak to peak, sugar has had a
bumpy ride. Prices of "raws" collapsed from a 20-year high of 19 cents a lb
in early 2006 to around 9 cents in mid-2007, burdened by over-production,
especially in India. Sugar's revival is thanks in part to to wheat, the
pacemaker in commodity markets with prices doubling to all-time highs.
But unlike wheat, whose rally is backed by decades-low stocks, poor crops
and rapidly rising demand, sugar's price rise has been against all the odds
-- a massive supply surplus of over 9 million tonnes overhangs the market
this year.
Instead, say traders, it's been a case of financial funds fleeing other
assets to seek higher returns, especially with the spectre of inflation
growing more real.
"A lot of the funds' analysis suggests that this thing called ag-flation
is here for a while," Garry Booth of leading commodities broker MF Global
told Reuters.
Sugar still has some catching up to do with the really big boomers. The
sweetener's 40 percent price rise since early December 2007 compares with a
113 percent rise by wheat since its big bull run started in April 2007 and a
93 percent surge in the price of oil since January 2007.
Lex Hoogduin, global chief economist of asset manager Robeco, told an
investment conference in London last week that slower world growth would
cause only a temporary hiccup in food prices.

BUMPER CROPS LOOM
India will produce another bumper raw sugar crop this year of around 30
tonnes, roughly steady with last year, although early estimates have been
revised down.
Sugar brokerage and analyst Kingsman recently forecast that Indian output
would fall to 25 million tonnes in 2008/09 from 29.8 million the year before.
This would contribute to a shrinking world sugar surplus of 1 million
tonnes in 2008/09, down from 9.4 million in 2007/08.
Indian export sales from 20 million tonnes of sugar piled in sheds across
the country have also been slower than first feared by the world trade, when
export bans were lifted in January 2007. The country still has over $5
billion worth of unsold sugar. Meanwhile, demand in Asia is growing by 2
percent, or by 3 million tonnes a year.
In Australia's tropical northeast, where sugar cane grown along a 2,000
kilometre coastal strip produces the third largest exports in the world,
growers this week battled floods in a buoyant mood. "I think we're looking
at a better market in 2008 than we would have expected a little while ago,"
said Ian Ballantyne, general manager of Australian representative body
Canegrowers. "And 2009 looks stronger again."(Additional reporting by David
Brough in London and Chris Kelly in New York)