Unfavourable weather conditions in Brazil and India lead to soaring sugar price

 In the past seven days of trading, raw sugar in the most-active contract with a March 2016 maturity date has risen by 17% and at 13.5 US cents per pound is at its highest price since mid-July. The poor Brazilian sugar production figures are still having after-effects, especially since the rainfall which is hampering harvesting and reducing the sugar content is continuing. 

This makes it less likely that the target of around 600 million tons of processed sugar cane in the current crop year 2015/16 will be achieved, says Commerzbank. The lower sugar content could further exacerbate the shift towards ethanol production that is already pronounced for other reasons. 

The Indian Sugar Mills Association (ISMA) expects sugar production in the 2015/16 season in India to be 5% down on last year, which is quoted at 28.3 million tons. In this assessment, it is now showing somewhat greater scepticism than it did just a few weeks ago. The reason for this is the insufficient rainfall: according to the India Meteorological Department, this year's monsoon season saw 14% less rainfall than the norm. 

The climate phenomenon El Niño is blamed for this, as well as for the heavy rainfall in Brazil. For the first time since the summer of 2014, short-term-oriented market participants have noticeably switched their net positions into positive territory again. This is likely to have lent support not only to the upswing, but also to the somewhat stronger Brazilian real of late.