The realisation of a global raw sugar shortage has fuelled the commodity’s biggest rally in almost three decades.
Prices for the March supply contract closed at US14 cents per pound on Tuesday, up 1.3 cents, representing the biggest percentage jump in 28 years.
“It’s completely caught the market by surprise,” Queensland Sugar Limited treasurer Stephen Stone said.
“The speculative interest at this time is usually quite frenetic.
“They’d essentially got themselves out of the market, now they want to get back in so that caused the rush of buying last night.”
Futures analyst Jack Scoville of the Chicago-based Price Group said the “huge rally” was a result of the world supply turning from surplus to deficit for the first time in five years.
“We’ve had very dry conditions in India, very dry conditions in Thailand,” he said.
“What happened today was the International Sugar Organisation reduced its world production estimates based on production losses in those two countries.
“I think that caught the market very, very short.”
Sugar is “back in town”
Sugar is one of the most volatile commodities, going up and down frequently.
But Mr Stone believed this bounce would be one with more air time, given that demand was forecast to well-outstrip supply for the next two years.
“It’s likely to see further advances in price, at least in the short term,” he said, pointing to a return to prices over US15 cents a pound.
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“This will add a nice little kicker to the end of season for the 2015 [pricing] pools,” Mr Stone said.
Canegrowers Queensland chairman Paul Schembri described it as sugar being “back in town”.
“This is a shot in the arm to cane farmers who were nervously watching the losses that occurred in early January,” he said.
“This is a huge boost in confidence.”
The Australian sugar industry is strongly geared to the export market, with more than 3 million tonnes sold overseas by Queensland Sugar Limited each year.
And the sweetest news of all, domestic consumers who like a spoonful of sugar are largely insulated by daily price movements due to long-standing contracts.
Growers hoping to regain ground lost in 2015
Isis Canegrowers chairman Joe Russo said the rally was most likely a correction on challenging prices during the 2015 season that saw some speculation prices could fall below US10 cents per pound.
“It’s definitely the right direction. It’s not the price where we’d like to see it because currently the break-even price has got to be over that US14 cents per pound,” he said.
“We can only hope that it does get up around the US16 cents at least to give growers some opportunity, particularly in the southern regions where we rely so heavily on irrigation and we’ve all just received electricity bills that were real shocks.
“A boost in sugar prices will go some way of smoothing that. It won’t help pay it but it gives you some confidence going forward.”
Mr Russo said so far the size of the crop was looking good, and the prospect of good prices was a good sign for a successful 2016.
“On the back of looking out the window and seeing the crop look so lush and green and potentially a good crop, it does auger well for a good start,” he said.
“There’s no doubt about the crop size. It’s just the price going forward and that will make everybody happy and pick up a lot of lost ground that we’ve experienced in the last 12 to 18 months.”
Source – ABC