Sugar Market: "How Many Lumps Would You Like?"

Reuters reports that sugar prices rose to a record high and ICE raws rose to a 3.5 year high today, Monday, August 3, 2009.

Both, prices and futures, are directly impacted by:

• the global deficit (9 million tonnes) in sugar supply from 2008/2009
• predictions about global sugar demand
• crop problems for the world's top two sugar growers (India and Brazil)

El Niño's climate conditions have created an imbalance which has deprived India's sugar crops of much needed precipitation.

In addition, India is anticipated to be a the world's greatest sugar consumer this year. If the crops don't do well, India will have to rely even more on import.

What's more, the rain water that India needs, Brazil seems to be getting.

In this case, one country's treasure is another country's junk... and this is more than just a proof by logic, as evidenced by the numbers (read on).

Hussein Allidina, head of commodity research at Morgan Stanley, said,

"The lack of precipitation in India increases the likelihood that 2009/10 production estimates prove too optimistic."

Currently, the ICE front-month sugar contract is at 19.43 cents per pound.

Allidina also hypothesises that, "...raw sugar futures will soon break above $0.20, a 28-year peak."

Analyst Nicholas Snowdon, of Barclays Capital Report, is in agreement.

"Our current target on the March 2010 contract is 22 cents per pound, but this may prove conservative if El Niño lives up to its reputation."

Looks like we can bet on that.

According to the National Weather Service,

"El Niño conditions will continue to develop and are expected to last through the Northern Hemisphere Winter 2009-2010."

Bottom line is, there is nothing to do but ride El Niño's waves and continue to buy and sell sugar.

The obvious supply and demand relationship for sugar will be actualized, along with the pricing that accompanies it.