Sugar Remains Bullish Because of Supply Shortfall
While other commodities are experiencing a significant hit, sugar remains bullish. A shortfall in the US and Asian supply and reduced US refining capacity are keeping prices high.
The coronavirus has been unkind to economically sensitive commodities like crude oil and copper. However, it has also impacted agricultural products such as corn, wheat, and soybeans.
The crude oil price was one of the most significant contributors to DBC’s (Invesco DB Commodity Index Tracking Fund) decline. Sugar has been one of the rare commodities to escape a price decline.
A growing supply and demand deficit in the current crop year supported sugar prices, said S&P Global. The American corporation also noted that factors like weather, factory shutdowns, quarantines, and supply-chain problems would also have a significant impact on sugar supply availability.
According to the latest USDA World Agricultural Supply & Demand Estimates for February, US sugar production assessments for the 2019/20 season is 10% below last year’s supply for beets and 9% lower for a cane. USDA saw imports for the current growing year as being 25% higher than last year’s, while exports remained unchanged. Supply deficiency is clear to see. Moreover, increased imports emphasize the fact that domestic refiners are having difficulty meeting industrial demand for sugar.
Sugarcane for Ethanol Demand is likely to Decline
In the upcoming planting season, sugarcane for ethanol demand is likely to decline. Falling oil prices have also reduced the need for growing cane. Healthy demand for ethanol usually occurs when crude prices are rising. It is a huge stimulant for sugar demand since much of Brazil’s cane supply is designated for biofuel production rather than food-related exports. But fuel prices are falling and sugar prices are rising. Thus, Brazil’s sugar growers now will plant more cane for industrial food use in the upcoming season.
Increased sugar cane plantings for food consumption possibly won’t have a noticeable impact on supplies, analysts say. Clif Droke, an analyst at Seeking Alpha, states that lower domestic and Asian supply positions should predominate for the next few months and help keep sugar prices in a rising trend.
While the coronavirus has harmed many commodities led by crude oil, sugar remains detached from the virus’s destructive influence. Reduced US and Asian supplies, plus the inability of US sugar refiners to keep up with end-user demand, have retained sugar’s intermediate-term bull market alive. From a technical view, the relative strength of the sugar price compared with other important commodities also raises its attractiveness to market-moving institutional traders. Given these factors, a bullish intermediate-term position toward sugar is still warranted, said the analyst.
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