Sugar rises on Brazil supply concern

A recovery in the dollar weighed on commodity markets on Thursday but raw sugar prices bucked the weak trend on concerns over the outlook for production in Brazil.

Unica, Brazil’s sugar cane industry association, said the world’s largest cane growing region, the Centre South, would process 529.5m tonnes of cane in the 2009-10 season, a 3.7 per cent reduction from a previous production forecast made in April. Wet weather has disrupted the peak harvesting period and also affected yields.

Traders are concerned that further weather-related disruptions could hamper processing over the remainder of the current season that runs until March 2010.

ICE October raw sugar added 0.1 per cent to $21.58 a pound.

Global sugar stocks have already shrunk to record lows as India, the world’s largest consumer, was forced to import substantial volumes of sugar to meet its domestic needs.

“The global sugar market has become hooked on Brazil to supply the growth in import demand,” said Toby Cohen, director at Czarnikow, the sugar broker. “With the tail of the Brazilian crop approaching, imports will begin to struggle to secure supply.”

Czarnikow said supply tightness in Brazil was already being reflected in domestic prices that have risen 20 per cent since the start of the current season in April.

Liffe December white sugar fell 2.1 per cent to $572 a tonne.

Cocoa prices fell in spite of concerns that disease and bad weather will reduce cocoa output this year in Ivory Coast, the world’s largest producer.

Liffe March cocoa fell 0.7 per cent to £2,030 a tonne while ICE December cocoa lost 2.6 per cent to $3,073 a tonne.

“Swollen shoot, which we call the AIDS of cocoa here, will become a big problem,” said Gilbert Ano, head of the country’s cocoa management committee.

“I am worried, the plantations are suffering and, if they are not treated, cocoa will be finished for Ivory Coast in 10 years,” said Paul de Petter, managing director for Africa at Barry Callebaut, the food producer and leading cocoa buyer.

Gold dropped below the $1,000 mark, sliding 1 per cent to $998 a troy ounce, under pressure from a recovery in the dollar.

“Gold market fundamentals do not look very encouraging at present, said Suki Cooper, of Barclays Capital. “If gold is to maintain its recent improvement, investment demand will need to continue expanding fast.”

Barclays said the potential for further dollar weakness, especially if the Fed was perceived as falling “behind the curve” in tightening monetary policy, could provide broad support for investor interest in gold.

Crude oil prices dropped sharply, extending their retreat following news in the previous session of an unexpectedly large increase in US inventories.

Nymex November West Texas Intermediate oil sank $3.08 to $65.89 a barrel while ICE November Brent fell $3.17 to $64.82 a barrel.

The Baltic Dry Index, the benchmark for freight costs for iron ore, coal and grains, fell for a 10th consecutive session, down 0.6 per cent to 2,163 on concerns that Chinese demand for commodities would slow in the second half of the year.