sugar continues to push new highs

Sugar Jumps to 28-Year High on Import Demand, Output Deficit

By Shruti Date Singh

Aug. 31 (Bloomberg) -- Sugar futures extended a rally to the highest price since 1981 on signs of rising import demand from Pakistan and Egypt and increased speculation on forecasts for a second-straight global production deficit this year.

Pakistan, the third-largest sugar-consuming country in Asia, may import as much as 1 million metric tons by December, a producer group estimates. On Aug. 15, Egypt halted import duties until year-end to lower prices. Macquarie Bank Ltd. has forecast a world output deficit of 6.2 million tons in the year through September 2010, compared with 11.2 million tons in 2009.

“There is some fund buying into the market” because it’s looking strong, said Anthony Compagnino, a partner at East Coast Options Services Inc. in New York. Fundamentals including global production and demand are supporting sugar, he said.

Raw-sugar futures for October delivery rose 0.87 cent, or 3.7 percent, to 24.39 cents a pound on ICE Futures U.S. in New York. The price earlier reached 24.48 cents, the highest since February 1981.

“Supposedly, there were a couple of tenders over the weekend for physical sugar,” Compagnino said. “Apparently, Pakistan and Egypt were in the market.”

The price has more than doubled this year, gaining 31 percent in August, on concern that a drought may curb output in India and that too much rain is slowing the harvest and reducing yields in Brazil.

“The rains continue in south Brazil and expectations are that the cane harvest in the second half of August will be 15 to 20 percent less than the first half of the month,” said Jeff Bauml, an R.J. O’Brien & Associates senior vice president in New York.

Rain Curbs Harvest

Sugar-cane output in Brazil is declining after heavy rain in parts of the Center South, the world’s biggest producing region, miller Maurilio Biagi Filho said last week. He said rainfall in parts of the area this month through Aug. 26 was the most in more than 60 years. The rain will pare the region’s cane harvest to 30 million metric tons in the second half of August from 40.1 million tons in the first half, Biagi said.

India is the world’s largest user of sugar and second- largest producer after Brazil.

Bullish forecasts coming from a sugar conference in India also may be supporting the market today, Bauml said.

India should lock in supplies now, Michael McDougall, a Newedge USA LLC senior vice president, said in an interview in New Delhi. India may need to compete with countries including Russia and Pakistan for imported supplies, McDougall said.

Sugar may rally higher as world output trails forecasts and importers such as Mexico increase purchases, Jonathan Kingsman, the head of Kingsman SA, said in an interview in New Delhi.

“Prices have not yet solved the problem of deficit,” said Kingsman, whose firm advises banks, hedge funds and Fortune 500 companies. “The price at the moment is high historically, but it is justified fundamentally because of these global deficits.”

To contact the reporter on this story: Shruti Date Singh in Chicago at [email protected].

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