Commodity Blog

Computer programs exaggerated the sell-of of sugar futures that started on the news about the cyclone in Australia, sending sugar prices down 9.3 percent. The speculation that Cyclone Yasi will damage crops in Australia caused selling of futures on sugar that triggered a cascade of computerized “stop losses” (orders to sell). Meanwhile, the cyclone was downgraded from a Category 5 to a Category 2, reducing its potential influence on the output.

A new method of executing prearranged buy and sell orders was scheduled to be implemented at ICE on January 25, but the implementation of the method was delayed and will be announced after “consultation with market participants”. This method should prevent a “cascading stop effect”. As for the current situation with the wave of sell orders, ICE isn’t planning cancellation of orders as “trades were executed within reasonability limits and outside the threshold for trade cancellation”.

Jeff Bauml, a senior vice president at R.J. O’Brien & Associates, a broker in New York, said that “today’s fall is basically computer trading at its worst”.

March contract for delivery of raw sugar dropped as much as $0.0327 to $0.3204 per pound as of 14:00 on ICE, the biggest slump after a decline by 10 percent on December 30.

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