NEW YORK: Hedge funds that bet big on a sugar rally are being rewarded with the biggest advance for the commodity since 2013 amid a looming global shortage of the sweetener.
Money managers have more than tripled their bullish wagers in just two weeks, increasing their net-long position to the highest in more than a year. A strengthening El Nino weather pattern is posing a threat to output in Australia just as production declines from mills in India to Brazil, the world’s top grower and exporter.
Prices have jumped 11% this month, the most among the 22 components of the Bloomberg Commodity Index, a measure of returns. The International Sugar Organization predicts that after five years of surplus, demand will outstrip production in the season that started this month. The deficit will more than double to 6.2 million metric tonnes the next year, the group said in September.
“Much of this move has come on the back of a tightening market,” said Harish Sundaresh, a portfolio manager and commodities analyst in Boston for the Loomis Sayles Alpha Strategies team, which oversees US$5bil. “There seems to be weather problems in Brazil, in certain parts of the country’s Center South region, and India is also worried about the monsoon effect on crops.”
Sugar futures in New York climbed 16% over the past three months, the biggest such gain since 2013. Prices are rebounding after reaching a seven-year low in August, spurred by declines for Brazil’s real that encourage exporters to increase shipments that fetch dollars in return. Since then, declines for the South American currency have eased, while dry weather is posing risks to the nation’s crop.
Money managers boosted their net-long position by 33% to 117,090 futures and options contracts in the week ended Oct 13, data from the US Commodity Futures Trading Commission show.
That’s the highest since July 2014. Short holdings have declined in seven of the past eight weeks.
In Brazil, after too much rain disrupted gathering earlier this season, dry conditions are now threatening next year’s harvest, which could worsen the global deficit. At the same time, cane collected this year has had reduced sucrose content, spurring mills to turn more of the crop into ethanol, rather than sweetener. Only about 42% of the crop this season has been processed into sugar, down from 44% this time last year, industry data show. — Bloomberg