Sugar risks price fall despite bullish view

Sugar futures, which doubled in price this year, could fall early in 2010 when the market wakes up to a big cane overhang from Brazil's current harvest, despite a popular view that prices should remain buoyant.

Several delegates at this week's International Sugar Organization (ISO) seminar felt sugar futures prices were likely to stay high due to historically low stock-to-use ratios, steady consumption, and the risks of a supply crunch in Asia.

Raw sugar futures hit a 28-1/2-year high this year, after a rally driven by India's strong appetite for imports, and heavy rains in top producer Brazil which cut yields.

A senior JP Morgan executive challenged the prevailing bullish view when he said ICE raw sugar futures could fall as low as 15 cents a lb in the first half of 2010 as factories re-opened in Brazil to start the 2010/11 crush.

March raw sugar futures on ICE rose 0.24 cent to close at 22.32 cents a lb on Wednesday. The market was shut on Thursday for Thanksgiving.

James Proudlock, executive director, futures and options commodities of JP Morgan, said in an address to the ISO seminar that the trade would wake up to hefty sugar supplies next year when Brazilian factories re-open early to crush cane.

"When the factories start the crush early to tackle the 58 million tonnes of cane left in the fields, the trade will see that there is plenty of sugar around," he said.

CROP OVERHANG

Traders and analysts estimate that some 40-60 million tonnes of cane will be left in the fields at the end of the 2009/10 harvest after excessive and persistent rainfall in Brazil cut yields and quality.

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