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Sugar Futures Melt 3% on Larger Supplies

August 3, 2017 at 17:20 by Andrew Moran

Sugar futures fell as much as 3% on Thursday because of larger supplies of the sweetener. Despite rising to a two-month high earlier in the trading week, spurred by a tax cut to ethanol in Brazil, sugar prices have come under pressure due to climbing global supplies.

October sugar futures tumbled 0.43 cents, or 2.91%, to 14.36 cents per pound at 17:00 GMT on Thursday on the ICE Futures exchange. Sugar prices had been trading at their highest levels since June and the commodity has plunged more than 23% year-to-date.

Experts alluded to technical factors as the primary cause for sugar’s decline towards the end of the trading week. The supply of sugar remains quite high, which comes as Brazil is in the middle of an ongoing harvest. Last month, it was reported that Brazil’s sugar output soared by nearly double in the first half of June as the country’s center-south mills produced 2.4 million tons of sugar, up 98% from 2016. The South American powerhouse is the world’s largest producer of sugar.

For months, a weakening US dollar has supported the commodity, but the greenback was mixed on Thursday. The US dollar dropped 0.06% and is trading at its lowest level since April 2016. A lower dollar makes commodities like sugar cheaper for foreign investors to purchase.

Societe Generale warns that sugar still has more room to fall, more so than other commodities, including coffee and corn, citing a “mispricing of risk.”

This divergence is unusual and can be interpreted as a ‘mispricing’ of risk in the market.

When risk is underpriced, almost all commodities moved lower by an average of 2.3% in the following month.

Other commodities are in the red on Thursday. September orange juice futures slid $0.0125, or 0.93%, to $1.396 per pound. September corn futures fell $0.0125, or 0.33%, to $3.77 per bushel. September wheat futures tumbled $0.0325, or 0.71%, to $4.575 a bushel.

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