Thursday, 7 July 2016
As sugar finds its sweet spot, investors ask for how long?
After a four-year bear market, sugar has found its sweet spot.
Its steepest bull run in years has seen prices of U.S. raw sugar, the global price benchmark, more than double in less than a year, making one of the smallest commodity markets one of the best performingso far this year, outpacing two of the biggest, gold and oil.Investors who have ridden the market to 2012 highs, betting on expectations of dwindling supplies from key growers like India and Thailand, are now wondering how much higher prices can go, still awaiting a long-anticipated deficit. "It's uncertain how much further the run-up can go ... The upside may be limited to another 10 to 15 percent," said David Martin, founder and managing member of Martin Fund Management LLC in New York which has $82 million of assets under management. He placed bullish options bets when sugar, currently over 20 cents a lb, broke through 17 cents in May, reversing a longstanding bearish position. He said he is now positioned neither bullish or bearish.World demand is expected to exceed supply for the first time in six years this year as drought in India, the world's second-largest grower, and unfavorable weather elsewhere in Asia threatens output. But there is little sign yet of extreme nearby tightness to justify lofty prices above 20 cents, some say. On Friday, data showing a drop in speculators' net long position offered the first sign appetite may be waning. The meager 270-lot decline marked the first time hedge funds have scaled back the record bullish bet they have held since May, worth some $6 billion."I imagine (a correction) could be quite violent," said Doug King, chief investment officer of Merchant Commodity Fund in London. "There is no reason to believe the market could go to 25 cents. We don't have a shortage of sugar now."