Sugar traders eye large October ICE delivery after price rally

September 29, 2013


Global sugar traders are expecting a bigger-than-average delivery against the Monday expiry of the October ICE Futures US raw sugar contract as the market continues to digest a huge crop, even as rains and maintenance have hampered cane crushing in top grower Brazil.

A large exchange delivery would come at a significant time for raw sugar prices, which have been locked in a bear market since early 2011 and are now poised for their best quarterly performance in almost three years. The front-month October contract on ICE touched a 4-1/2 month high of 17.67 cents a lb on Thursday, up nearly 11 percent from a three-year low set in mid-July as a global glut and Brazil’s output made themselves felt.

Traders pegged the total delivery at likely between 500,000 tonnes and about 1 million tonnes, although some said it could be higher given the high open interest just three days before the expiry on Monday. That would be much higher than the average 453,000 tonnes in the past five October deliveries, according to ICE data.

The high end of the forecast would make this the largest October delivery in years. The bulk of the material is expected from Brazil as the world’s No 1 producer heads into the final leg of its production cycle. About two-thirds of its bumper 590-million tonne crop expected in the 2013/14 season has been crushed.

Central American, possibly Guatemalan, and Argentinean sugar were also expected, traders said. While the Brazilian sugar is widely expected, it has returned after a surprise absence in the July expiry when a strong cash market drew material away from the exchange. This time, with futures prices no longer at a steep discount to the cash market, delivering to the exchange might be more alluring as an outlet for Brazil’s huge output, traders said.

Some merchants might want to take some of the material in an effort to secure supply after recent wet weather and mill shutdowns in Brazil slowed crushing. Last October, Bunge Ltd took the bulk of a delivery of about 595,000 tonnes, as rains increased worries about potential disruptions.

“Is there demand from the sugar, or is someone worried about rainfall impacting production?” said Michael McDougall, senior director for Newedge in New York. Another uncertainty was how much, if any, Argentinean sugar would feature after ICE Futures US warned last week that changes in the country’s port rules could affect the logistics of exporting sugar. Courtesy  Reuters

Published in
Sugar, Sugar exports

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