Raw sugar prices rose on Tuesday and ended at their highest level in nearly eight years due to heavy buying by funds betting supplies will stay tight amid rising demand for biofuels and robust consumption of the sweetener, brokers said.
Investors who control large pools of money are betting sugar prices will rise further because of the steady diversion of cane into producing the biofuel ethanol.
They are also looking at tight stocks and a shortfall in supplies for the third season running. The New York Board of Trade's benchmark March raw sugar contract soared 0.29 cent or nearly 2.50 percent to settle at 12.04 cents a lb., just a hair below its new contract high of 12.05 cents.
The day's low was at 11.79 cents. Based on weekly charts for the raw sugar market, the close for the spot contract is the highest since the start of 1998, when what was then the spot month traded over 12.25 cents.
The second most-active May sugar contract went up by the same amount to finish at 11.94 cents, having also hit a contract high of 11.95 cents.
The back months in the market increased from 0.15 cent to 0.24 cent. "The whole thing has been fund driven and it looks like they're going to make another stab higher given how strongly we closed today," a senior dealer for a brokerage house said.
The market's strong fundamentals were underscored when the International Sugar Organisation pegged the global sugar deficit in 2005/06 of 1.01 million tonnes, the third straight season of a shortfall in the sweetener.
Sugar prices moved higher from the start in New York, as the market took its cue from the firm tone of the London white sugar market, dealers said.
Once the March contract raced past the previous contract high of 11.91 cents, computer-generated automatic buy orders kicked in and hoisted sugar close to and then over the psychological barrier of 12 cents, they said.
"The trade and the producers were selling into it every point up, but they just could not buck the funds," a dealer explained. The amount of contracts traded before the close of business stood at 68,102 lots, versus the previous tally of 53,196 contracts.
Call volume hit 9,589 contracts and puts amounted to 9,447 lots. Technicians said they feel resistance for the March contract would be at the January 1998 high of 12.22 cents, with support at 11.91 and then the area of 11.85/86 cents, which used to account for a strong level of resistance.
The aggressive buying by the funds has caused open interest in the No 11 raw sugar market to soar. Interest jumped 6,271 lots to 475,489 lots as of November 14 and dealers said another 6,000 lots were likely added to the funds' long position on Tuesday.
The ethanol futures market was not traded anew. There were no quotes in the spot November ethanol contract. US domestic sugar prices ended higher.
The January contract climbed 0.20 cent to 21.80 cents a lb. and March added 0.10 to 21.42 cents. Distant contracts were flat to 0.06 cent higher. Volume done before the end of trade hit 529 lots, from the previous 659 lots.
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