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Sugar Dips on Surplus, Market Anticipates ‘Good Value’ for Commodity

May 1, 2018 at 16:52 by Andrew Moran

Sugar futures are sliding on Tuesday as new data shows the commodity is facing a global surplus, buoyed by higher output in India and Brazil. But market experts say that sugar prices do provide “good value” because of the downside “exhaustion.”

July sugar futures fell 0.02 cents, or 0.10%, to 11.74 cents per pound at 16:27 GMT on Tuesday on the US ICE Futures exchange. Sugar prices have had a terrible 18 months and they are trading at their worst levels since the end of 2015. Year-to-date, sugar has plunged nearly 22%.

With an international surplus expected to dominate global markets for the next two years, there may not be an end to the bearish trends. Analysts warn that a recovery may not be on the horizon for another couple of seasons since another surplus is being anticipated for the new season that starts in October.

ICE Futures data found that sugar delivery totaled 1.07 million tonnes, or 21,021 lots. Brazil, the world’s largest producer of sugar, was the major driver of the surplus. This does not include India’s projected output for the 2017–2018 crop year, which is forecast to rise above 5.3 million tonnes, up from earlier estimates of 4.5 million tonnes.

But it may not be all bad news for sugar. JP Morgan said in a note to clients that sugar prices offer “good value,” urging investors to buy the dip. The bullish suggestion likely stems from Brazil confirming that it is transitioning its focus on ethanol production rather than sugar. This could help reduce the supply glut.

BTG Pactual, which released a downbeat assessment of sugar, wrote in February:

With sugar selling at an unprecedented 30% discount to ethanol, we expect Brazilian mills to shift away from sugar, and strongly reduce the expected global surplus from April on, eventually forcing sugar prices towards their ethanol anchor at circa 16–17 cents a pound.

Other agricultural commodities are rallying on Tuesday. July corn futures rose $0.045, or 1.12%, to $4.052 per pound. July wheat futures advanced $0.165, or 3.23%, to $5.27 a bushel. July soybean futures jumped $0.04, or 0.38%, to $10.527 per bushel. July orange juice futures surged $0.023, or 1.48%, to $1.58 a pound.

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