Raw sugar futures rallied to a seven-week peak on Tuesday after the government in top-grower Brazil restored a gasoline tax that is expected to boost ethanol use, while arabica coffee fell in its biggest three-day tumble in three months. Cocoa futures on ICE eased. Volume was heavy in the raw sugar and arabica coffee markets after the US holiday on Monday.
Raw sugar futures surged after the Brazilian government restored a fuel tax on gasoline and diesel on Monday. The sugar industry group Unica said Tuesday that this will encourage Brazil to produce more ethanol rather than sweetener as consumers will more likely choose the sugar-derived biofuel, rather than gasoline. This gave sugar futures, which are in the middle of a technical move higher, an additional boost, traders said. March raw sugar was up 0.46 cent, or 3 percent, at 15.79 cents a lb by 12:38 pm EST (1738 GMT), having earlier touched a seven-week peak of 15.82 cents a lb.
"The market is reacting to the ... tax hike in gas prices, which makes the consumer pay more for gas and makes them consider ethanol," said James Cassidy, Sugar Group senior director at Societe Generale in New York. March white sugar was up $9.80, or 2.4 percent, at $406.70 a tonne. Coffee futures moved sharply in the opposite direction as below-normal rains in Brazil's arabica-growing regions have raised concern following the unprecedented drought there at this time last year.
"Some people started talking again about the same condition as last year. I think it's too early to start talking about drought," said Hernando de la Roche, director of INTL FCStone's coffee division in Miami. ICE March arabica coffee futures fell 6.0 cents, or 3.5 percent, to $1.65 per lb. "Now we have a report from Somar saying they expect heavy rains in Sao Paulo, parts of Minas Gerais."