Decline in production in China and India push raw sugar price to 7-month high

The price of raw sugar in the most-active contract with a March 2016 maturity date closed yesterday at a 7-month high of 13.98 US cents per pound. The sugar price has soared by more than 20% over the past two weeks. Market participants are clearly closing their short positions and thereby boosting the price rise. 

This is also reflected in the positioning data from the CFTC, which show that speculative net long positions were at their highest level since July 2014 in the week to 29 September. There were still considerable (net) short positions until just a few weeks ago, however. 

Green Pool, an independent Australian analytical firm, had published new estimates of the global sugar market in 2015/16 on Wednesday, upwardly revising its deficit estimate from 4.6 million tons to 5.6 million tons to take account of lower sugar production in China and India due to the low sugar prices seen in recent years. 

The El Niño weather phenomenon is also contributing to the renewed downward revision and is having a negative impact on production in India in particular. According to the India Meteorological Department, this year's monsoon is 14% down on the norm. 

"However, it should not be assumed that the sharp increase in prices seen in recent weeks will continue, as it would not be surprising to see profit-taking. One possible trigger could be a renewed depreciation of the Brazilian real amid political turmoil in Brazil, as President Rousseff faces the threat of impeachment", says Commerzbank.