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Supply Chain

Sugar-Spread Collapse Suggest High Prices Are Hurting Demand

A collapse in the price difference between sugar contracts traded in London is raising questions about the strength of global demand.

White sugar for October delivery now trades at a discount to the next futures contract on the ICE Futures Europe exchange, reversing a premium last week. The weakness is fueling speculation that high prices are starting to dent demand after a 25 percent rally this year. Funds may also be reducing bullish bets, according to Agrilion Commodity Advisers.

Refined sugar futures, or the No. 5 contract, are usually seen as the barometer for global consumption because people eat the refined sweetener while the raw variety needs to be processed. A lower price for earlier dated contracts compared to later ones, a situation known as contango, usually means supplies are more than enough to meet demand.

"London has invariably raised questions as to whether this reflects a fund trying to lighten its long position in the No. 5 or lower whites demand, or a combination of the two," James Liddiard, a partner at Agrilion, said in a report e-mailed yesterday.

White sugar for October delivery was as much as $1.70 a metric ton cheaper than December futures today. Last week, it was at a premium. The spread was at a discount of $1.50 a ton by 11:18 a.m. in London.

Money managers reduced bets on higher prices by 11 percent in the week ended July 19, ICE Futures Europe data showed. The net-long position was 20,101 futures and options, the lowest since February.

White sugar for October slipped 0.3 percent to $527 a ton extending a 1.7 percent retreat on Tuesday.

The raw variety for the same month slid 0.8 percent to 19.37 cents a pound on ICE Futures U.S. in New York, adding to yesterday’s 1.9 percent slump. Prices are falling as dry weather helps accelerate the harvest in Brazil’s center south, the main growing region of the world’s top producer.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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