Record New York Sugar Delivery Gives Bears Even More Ammunition

(Bloomberg) -- A record raw sugar delivery in New York is giving bears one more reason to bet on lower prices.

Almost 2.3 million metric tons changed hands to settle the expiration of the May contract on ICE Futures U.S., the biggest delivery on record. Brazilian millers are already cranking up output as ethanol demand collapses and now the novel coronavirus threatens to slow global economies.

Large deliveries are usually seen as bearish as they imply sellers couldn't get better prices in the physical market. Singapore-based Wilmar International Ltd. and China's Cofco International Ltd., which usually supply consuming markets, delivered the sugar, according to people familiar with the matter, who asked not to be identified because the information is private.

“That's a lot of sugar, and it should be negative for prices,” said Jack Scoville, a vice president for Price Futures Group. Unless the receivers have a big customer like China, “this confirms that Brazil is going to have a much bigger output at a time that not much more is needed” because of the coronavirus impact on economic activity, he said.

Raw-sugar futures slumped 23% this year, with the virus eroding demand for ethanol, already hit by a price war between Russia and Saudi Arabia that sent crude markets into meltdown. Brazilian mills have the option to make sweetener or the biofuel from sugar cane.

Louis Dreyfus Co. and the agriculture unit of Glencore Plc were among the companies buying the sweetener. A year ago, the delivery was just about 67,000 tons.

To be sure, buyers are probably taking the sugar to supply some previously agreed contracts. With output in Thailand plunging this year, the world's top sugar buyer Indonesia has turned to Brazil.

While a long line of vessels waiting to load sugar in Brazil and higher export premiums signal firm demand in the near term, the grim outlook for the global economy is threatening demand, Bruno Zaneti, a risk management consultant for INTL FCStone Inc. in Sao Paulo, said in a report.

“The cards we have on the table tell us that this delivery tilts more to the bearish than to the bullish side of the balance,” he said.

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