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Speculative Selling Causes Sugar to Fall

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Sugar prices fall

Sugar No. 11 futures contracts on the Intercontinental Exchange (or ICE) for March delivery plunged by 2.4% and settled at $13.25 per pound on January 28, 2016.

Sugar’s price fell due to selling by hedge funds and speculators in the absence of bullish news on the soft commodity. The iPath Bloomberg Sugar Total Return ETN (SGG) fell by 1.7% on January 28, 2016.

Amid four consecutive days of bearish news and falling price movement, the hedge funds and speculators with net long positions in sugar contracts were influenced to sell. The triggered selling resulted in a sharp price fall at the end of the day.

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Sugar prices registered their highest slump since September 23, 2015, on January 28, 2016. Sugar received support from the supply side by way of improved weather conditions for the near term. Speculations of lower-than-anticipated falling price movement and the absence of any real bullish sentiment–supporting news weighed on sugar prices on January 28.

Stronger corn production could negatively influence sugar prices in the near term. Corn can be processed, and its sweetness can be extracted and used in many products such as soft drinks. With the rise in corn production in South America, businesses could see benefits.

Supportive policy decisions for exports and currency devaluation from key producer Argentina, which strives to be a top corn producer, could support corn in the near term. Sugar is therefore expected to face increased competition from alternative sweeteners in 2016. The speculation of higher competition negatively influenced sugar prices on January 28, 2016.

Stock discussion

The drop in sugar’s price is beneficial for companies engaged in the food and beverage industry, and it’s unfavorable for businesses involved in sugar production and trading. Companies such as Cosan (CZZ), General Mills (GIS), Campbell Soup Company (CPB), and The Hershey Company (HSY) rose by 5.6%, 0.49%, 1.3%, and 3.0%, respectively, on January 28, 2016.

The iShares MSCI China Index ETF (MCHI) rose by 0.90% on January 28, with the rise in sugar prices.

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