Sugar price bulls believe the market is caught in a "perfect storm" of squeezed supply, robust demand and inflation fears which is driving some to bet on prices above 40 cents a pound. Prices of the sweetener and corn are "seemingly in a race to the moon", tied by joint use in making ethanol as well as both suffering waning production hopes, Thomas Kujawa at Sucden Financial said. With the squeeze on corn supplies likely to put the dampeners on the grain's use by US biofuel plants, "we are going to see more ethanol coming out of Brazil", which manufactures its ethanol from sugar. "That means less sugar than there would have been," Mr Kujawa said, speaking shortly before the US Environmental Protection Agency was due to announce a decision on maximum ethanol blending levels. The agency is expected, at 17:30 GMT, to reveal that fuel producers can lift to 15%, from 10%, the maximum level of ethanol that can be mixed into forecourt petrol.
'Take-off stage'
Meanwhile, supply fears are being stoked by talk of Brazilian producers buying back hedges, which is being viewed as a sign that they are expecting disappointing output. "People think this means that mills will drop crushing fairy soon, a sign that there is not much more sugar cane around for this season," Jake Weatherall at Rabobank said. And overlaying crop-specific concerns are fears that loose monetary policy in America, and elsewhere, will stoke inflation, which should mean rising prices of assets such as commodities, even while depleting the value of investments such as cash and conventional bonds. "The strategy is not just about increasing capital, but trying to preserve it," Mr Kujawa said. "Certain trade sources are suggesting the perfect storm is building up for the bulls, and that present levels are simply at the take-off stage," he said. Indeed, there had been some trade on Tuesday in May call futures priced at 0.40 cents a pound ? implying that some investors wanted to protect their ability to buy at this level. END
MSF Price at posting:
$2.60 Sentiment: LT Buy Disclosure: Held
