A period of dry weather in Brazil has led to sugar prices soaring to a 30 year high as the Brazilian harvest ends early resulting in a likely supply shortage. Unlike earlier expectations for prices falls sugar prices are now possibly set to rise into the new year.
Crop shortages are likely in Brazil, Russia and parts of Europe with inventories standing at historical lows. Sugar prices are at their highest since 1980.
India is expected to announce shortly how much sugar it will allow traders to export. Most likely this will be between 1-2 million tonnes. Any less and we may see another steep rise in prices.
Brazilian mills and refineries are buying back sugar contracts from the trade resulting in rising domestic prices in Brazil as well as a likely impact in international markets.
While in India production forecasts have being increased due to a smaller than expected impact following flooding and therefore lower crop loss. In Russia crop damage due to bad weather resulting in lower local sugar production is expected to lead to increased imports in the first half of 2011. It is expected that Russia will export between 1-2 million tonnes as a consequence.
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The number of vessels lining up to load sugar at Brazilian ports has continued to increase giving support to sugar prices which bounced back today after coming off recent 7 month highs. Both raw and white sugar futures rose in New York and London respectively but without revisiting previous 7 month highs. Over 100 vessels are now waiting to load sugar at Brazilian ports.
Excessive rains in India are also thought to have given sugar prices some support. Production figures will be watched to establish if output is likely to decrease. If production figures are seen declining significantly it is likely that this will result in further upward support of sugar prices. However, if the expected 10% fall in production is offset by higher production elsewhere in India then recent heavy rains will have had no significant overall impact on production or prices.
Meanwhile as a result of poor harvests this year and last Mexico is to import 100,000 MT between 10% and 15% of which is expected to come from Nicaragua. Mexico will not apply a tariff to the Nicaraguan sugar and will only charge up to 10% of the usual $360 per MT tariff to the remaining imports.
The above factors may see the markets test recent 7 month highs tomorrow.
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