As Americans prepare to fill their Easter baskets with sweet treats, hedge funds aren’t feeling the sugar rush.
As expectations for a global supply surplus mount, money managers have reduced their bets on a sugar rally for six straight weeks, the longest streak since August 2014. The retrenchment has helped drive futures in New York down about 15% this year, among the biggest losses of the 22 components tracked by the Bloomberg Commodity Index.
The sweetener is getting cheaper just in time for Easter, celebrated on April 16 this year. The holiday has become a bonanza of candy buying in the US, where almost 90% of consumers celebrate by satisfying their sweet tooth, according to the National Retail Federation. Futures slumped to an 11-month low last week on disappointing imports by top consumer India, a mammoth crop in Brazil, the biggest producer, and speculation that demand will wane in China.
“The market was expecting India to buy more,” Paula Yamaguti, a commodity economist at Itau Unibanco Holding SA, said by telephone from Sao Paulo. “We expect prices to stay in a downtrend.”
The funds reduced their sugar net-long position, or the difference between bets on a price increase and wagers on a decline, by 23% to 43,381 futures and options contracts in the week ended April 4, according to US Commodity Futures Trading Commission data released three days later. That’s the smallest holding since March 1, 2016.
Benchmark raw-sugar, which represents global prices, was little changed last week at 16.77 cents a pound on ICE Futures US in New York. It closed at 16.10 cents earlier in the week, the lowest since May last year. The domestic contract fell 1.9%.
India Buying
India’s government last week said it would allow duty-free imports of 500,000 metric tons. That fell below market expectations for as much as 2 million tons after drought hurt the country’s crop.
In Brazil, production in the key Center-South region is expected to rise to a record for the season that started April 1, according to Sao Paulo-based consulting firm FG/A. The gains for supply have led analysts to project a global surplus. Rabobank International estimates the overhang at 2 million to 3 million tons, while Societe Generale SA sees it as high as 5 million.
Ballooning supplies are dragging prices lower after last season’s deficit. The United Nation’s Food & Agriculture Organization said last week its index of global food costs fell 2.8% in March from the prior month, citing lower sugar costs. That’s likely to be a welcome reprieve for about 70% of Americans who will be hunting for real or candy-filled eggs this Easter, National Confectioners Association data show.
Easter Spending
Americans will spend $2.6 billion on Easter candy, as total spending increases 6% to a record $18.4 billion, figures from the National Retail Federation show. The celebration is the second-biggest holiday for candy, trailing Halloween. The iconic Easter chocolate eggs were first introduced in Europe in the early 19th century, according to National Confectioners Association.
Candy lovers might be smart to load up on treats now. After the recent price rout, cane millers in Brazil could use more of the plant to produce ethanol instead of sugar, helping to set a floor under prices of the sweetener, Citigroup Inc. analysts including Aakash Doshi said in a report last week.
Adverse weather could curb projections for this season’s crop. Some parts of Brazil’s sugar belt have been very dry, and that’s threatening cane growth, said Donald Keeney, meterologist with MDA Weather Services. In India, drier-than-normal weather spurred by El Nino could hurt plants across central and western regions, he said.
“The market has become relatively quite complacent regarding a return to surplus for this crop year, and maybe it hasn’t quite factored in that the surplus only occurs if everything goes smoothly,” said Fiona Boal, the director of commodity research at London-based Fulcrum Asset Management LLP, which oversees $7 billion. “We are a long way from these crops from being harvested. So there’s always room for something to go wrong when you talk about the weather.”
For Easter revelers, price declines have already found their way to the grocery shelves. In the four weeks ended March 26, average chocolate-candy prices dropped 7.7% from the prior period, according to data from Chicago-based researcher IRI compiled by Bloomberg Intelligence. That’s a reason to celebrate whether you’re among the 89% that eat the chocolate bunny ears first, or the 5% that start with the tail.
News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.
