Brazil shortfalls add pressure to sugar prices

Sugar and cocoa prices rallied yesterday as strong supply and demand fundamentals for soft commodities attracted fresh investor buying and speculative inflows.

Brazil’s sugar production will be 2.1m tonnes less-than-expected due to heavy rains between July and November, according to Conab, the national crop supply agency, which forecast 2009/10 output would fall to 34.6m tonnes, compared with September’s projection for 36.7m tonnes.

Liffe March white sugar rose 2.1 per cent to a record $670 a tonne, up 11.7 per cent over the past six sessions. Raw sugar prices have traded above the 25 cents a pound mark this week for the first time since 1981. ICE March raw sugar jumped 5.4 per cent at 26.15 cents a pound before easing back to 25.92 cents.

Dealers said Brazilian producers had told trading houses that about 1m tonnes of sugar scheduled for delivery in the first quarter of next year would not be available.

The shortfall will force dealers to rely on supplies from Central America and Thailand. However, sugar in both areas is trading at a premium to the New York market, suggesting international prices could move higher.

“The market is trying to do its job,” said a senior sugar trader. “It is trying to squeeze whatever supplies remain available and, at the same time, trying to defer demand as long as possible.” Talk that raw sugar could reach 30 cents a pound circulated widely.

Cocoa prices hit fresh 32-year highs amid concerns that the market will experience a supply shortfall for a fourth successive season in 2009-10.

The market has not seen such a prolonged deficit since a shortage in 1965-69, according to the International Cocoa Organisation.

London Liffe May cocoa rose 2.4 per cent higher to £2,329 a tonne, the highest for the benchmark contract since September 1977.

In New York, cocoa prices surged $121 a tonne with ICE March cocoa up 3.6 per cent to $3,486 a tonne. One dealer suggested a move to the $4,000 level was possible.

Coffee prices also rose with ICE march arabica up 0.9 per cent to $1.4850 a pound, moving closer to the key $1.50 level. Arabica coffee prices have only briefly traded above $1.50 on three previous occasions in the past 11 years.

O il prices rallied strongly after larger-than-expected falls in crude and distillate stocks in the latest US weekly inventories data.

Nymex January West Texas Intermediate rose $1.97 to $72.66 a barrel, while ICE January Brent gained $1.50 at $73.55.

US crude stocks dropped 3.7m barrels last week, well above the consensus forecast for a fall of 1.8m barrels. Some of the fall was attributed to fog affecting the Houston shipping channel and bad weather affecting deliveries from Mexican ports as imports fell 365,000 b/d to just 7.77m b/d last week.

Colder US weather boosted demand for heating oil and distillate stocks (including heating oil ) dropped 2.9m barrels, well above the consensus forecast for a fall of 600,000 barrels. Nymex January heating oil rose 6 cents, or 3.1 per cent, to $1.9631 a gallon.

Nymex January RBOB unleaded gasoline added 3.8 cents, or 2.1 per cent, at $1.8836 a gallon. Gold rose to $1,137 a troy ounce.