Sugar prices hit 30-year peak on Fed move, weather woes

4th November 2010, Comments 0 comments

World sugar prices hit their highest point in almost three decades on Thursday, driven by a plunging dollar, fresh US monetary stimulus and increasing weather worries in key producing nations.

The price of unrefined sugar for delivery in March jumped to 31.64 US cents a pound on the New York Board of Trade (NYBOT) -- the best level since January 1981, after having hit similar highs earlier this week.

Sugar, which has shot up by 140 percent since May, is used mainly in the food and drinks sector but is also used for the production of ethanol -- a cheaper version of gasoline, or motor fuel.

"New highs again today and the bulls have the wind at their backs," said sugar analyst Thomas Kujawa at the Sucden brokerage in London, in reference to investors who are betting prices will go higher.

"It all seems to be going their way with the dollar on fresh lows and American economic policy makers seemingly coming to the conclusion that all they can do is fresh quantitative easing, which consequently means, for us, there's more money around chasing the same amount of commodities."

The weak dollar boosts demand for sugar, which becomes cheaper for buyers using stronger currencies, and therefore pushes prices higher.

In recent weeks and months, sugar has also rocketed higher as floods and droughts hamper production of the widely-used raw material.

"Earlier expectations (of a surplus this year) were dashed by an impressive flow of bad news on the production front," said Emmanuel Jayet, analyst at French bank Societe Generale.

"From floods in Pakistan to drought in Russia and dryness in Brazil, the already limited surplus forecast had to be revised down.

"With the surplus now seen around two million tonnes ... it forced the market to realize that the very tight supply situation of the 2009/2010 season would last much more than anticipated," Jayet added.

Prices are widely expected to remain at elevated levels despite higher sugar output in Brazil and India, the world's first and second biggest producers.

"Despite the rebound in Indian sugar production as well as higher Brazilian output, the thin level of inventory cover and near-term constraints are likely to keep prices well supported in the fourth quarter and the first quarter of next year," said Barclays Capital analyst Sudakshina Unnikrishnan.

© 2010 AFP

0 Comments To This Article