The sugar high has worn off. Futures have fallen by around 40% from early February’s 29-year high. They are now at an eight-month low of under $18 a pound. Prices doubled last year as bad weather in India and Brazil hampered harvests and sparked a rush for supplies by importers worldwide.
Now supply is bouncing back and beating expectations. Indian production for the year to September 2010 has been revised from 16 million tonnes to 16.8 million, while Brazil’s output in the year from April is now expected to be 12% higher than previously forecast. Speculators rushing out of the market have exacerbated the downtrend, as has the decision by some countries’ to postpone sugar purchases in the expectation that prices could fall even lower.
The current price represents “good value” considering the global market remains tight, says Kona Haque of Macquarie. But the number of speculators in the market betting on a price rise could accelerate a further fall by selling out, says Chris Flood in the FT. The bullish news of a cyclone hitting supplies in Australia has failed to arrest the slide, says Eugen Weinberg of Commerzbank. It’s clearly “too soon” for the momentum to shift.