Tag Archives: ICE sugar futures

ICE’s plans for white sugar futures

October white sugar futures closed $16.50 lower at $483.70 per tonne. While December futures declined $15.80 to $473.00 per tonne.

Reports indicated that Intercontinental Exchange (ICE) the new owner of the London white sugar futures contract may offer container delivery which would be more in line with a growing trend in the industry. The white sugar futures contract currently only accepts deliveries in bulk vessels,  This is seen by some as unrepresentative of the market given current growth in container trade which is for many becoming the preferred method of transport in the physical sugar market.

Also on the cards is a possible launch of a new refined sugar contract for ICUMSA 150 which is a lower grade of refined sugar compared with ICUMSA 45 and would better reflect sugar delivered originating in Brazil, India, Thailand and Palistan.

Advertisements

Hedge funds seen long sugar

Hedge funds and speculators seen going long in the New York sugar futures market according to Commodity Futures Trading Commission.  Longs exceeded shorts by over 52,000 ICE futures contracts.  Overall net long positions increased by 14,965 from last week.  This is while those engaged in the physical growing and processing of sugar and likely to be hedging were short a net total of 46,426 contracts compared with last week which is an increase of over 14%.

Middle East tension and weaker dollar keep sugar market on edge

Protests have been broken up in Bahrain where two protestors were killed. The protesters are primarily from the Shiite majority. Protests are also planned tomorrow in Libya. Meanwhile Iran has announced that two of its war ships are to pass through the Suez Canal for the first time since 1979.  Israel has announced that it viewed the move as a hostile act.

Renewed tensions in the Middle East following the Tunisian and Egyptian revolutions, yesterday resulted in a sharp rise in the Brent crude futures contract which closed at $103.78 per barrel.  Rising oil prices provide ethanol and sugar futures with support and along with  a weaker dollar, with further dollar weakness expected, March raw sugar futures ended up 3% to close at 31.54 cents per lb.

An era of high sugar price volatility?

High volatility has been a feature of futures and physical sugar markets over the past months.  Whether high volatility is likely to become a long-term feature of the sugar market or whether traded options on sugar futures will become liquid and a viable means of trading such volatility or whether governments, regulators and exchanges are likely to put in place measures to stem price swings is yet to be seen.  However, there are a number of factors that if not addressed give rise to the possibility of higher price volatility over the long-term.

Global warming and as a consequence climate change raise the risk of weather instability in the form of extreme weather and an increase in magnitude and frequency of such events.  In early February cyclone Yasi destroyed up to 25% of Australia’s sugar cane crop.  Supply tightness as a result of such weather events, increasing world population and rising demand for ethanol leading to sugar cane, particularly in Brazil, being diverted to ethanol production potentially provides sugar with price support.  Rising oil prices make biofuels, including ethanol from sugar cane, viable and more competitive, but higher biofuels demand potentially decreases sugar supply and removes agricultural land from food production to the growing of crops for biofuel production.  Rising food prices have led and will continue to lead to political instability around the world, in some cases pushing oil prices even higher.  Such political instability raises concerns amongst governments and often results in decisions aimed at protecting domestic food stocks, including sugar supplies, at the expense of potential exports.  India recently referred a decision to permit up to 500,000 tonnes of sugar exports, under its Open General Licence, to a government panel for review and ratification to ensure sufficient domestic supplies prior to such an approval.

Due to the serious nature of the above issues and the potential for market and political instability, futures exchanges have moved to play their part in reducing price spikes and volatility resulting from computerised algorithmic trading.  ICE announced in February that it may revert back to automated price generation.

ICE automated price generation

Regulators are also exploring measures that can be put in place to ensure price transparency including clearer supply and demand outlooks, open access to futures trade data including large positions held by funds and reporting and/or placing OTC trades through the exchanges.  As there seems to be no consensus on the link between derivatives speculation and physical commodity prices, limits on futures positions seems unlikely.

Nicolas Sarkozy has identified commodity price volatility as a priority during France’s presidency of the G20 group of nations. US beet production may decrease by 20% and in a move to avoid this, last week the USDA gave Monsanto the go ahead with its genetically modified sugar beets.

Monsanto sugar beets get green light

ICE may reinstate automated price generation

ICE raw sugar futures volumes are at five month highs at over 209,000 contracts.

ICE may reinstate automated pricing for its sugar contracts in an attempt to decrease volatility and price spikes said to be caused by algorithmic trading.  Volumes are higher since ICE automated price generation was last used in 2009.  Automated price generation helps generate bids and offers more closely replicating pit trading and maintaining fair value between contracts in different months, thereby eliminating some arbitrage opportunities.

In light of rising commodity prices, increased volatility and calls for greater transparency, exchanges are considering various ways to achieve such objectives.  In January 2011 ICE delayed the start of its Cascading Stop Mitigation system aimed at overcoming some of the impacts of algorithmic trading and pre-specified orders on the ICE platform.