TRADERS are betting that the biggest sugar glut since 2007 will shrink in the next harvest, reversing expectations from six months ago and ending the largest decline in prices in a decade.
Raw sugar for March 2013 is trading at a premium of 3.9 per cent to the July 2012 contract on ICE Futures US in New York, compared with a 6.6 per cent discount six months ago, according to a report in The Australian Financial Review.
The switch is reflecting a change in outlook even before forecasts for the next season from the International Sugar Organisation or US Department of Agriculture.
Prices may rise as much as 12 per cent to US27¢ a pound by December 31, according to the median of 21 analyst and trader estimates compiled by Bloomberg.
Futures fell 27 per cent last year, the most since 2001, as a glut emerged after three consecutive annual shortages. Traders are now focused on the prospect for crops in India and Brazil, which account for 38 per cent of output. The predicted rally may curb a drop in global food prices tracked by the United Nations that drove costs to a 14-month low in December.
"Sugar is moving from an expected surplus to concern about supply," said Bruno Lima, a Brazil-based senior risk management consultant at INTL FCStone, a trader and adviser to commodity producers and consumers.
"There's a lot of sugar now and this is reflected in the lower price for July, while March 2013 futures are higher because Brazilian producers are concerned about the crop and there's speculation output could shrink in other countries like India."
The sweetener is up 3.2 per cent to US24.05¢ this year, versus a 3.6 per cent drop in the Standard & Poor's GSCI Agriculture Index of eight commodities.
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