China’s increasing appetite for sugar imports has jolted the spread between futures prices for the raw and processed products.

“There has been poor weather, but there’s also been an exodus out of sugar production” in China, Michael McDougall, a broker at Societe Generale in New York, said in a telephone interview. “They’ve steadily reduced the cane price for the farmer, so he’s basically planting something else.”

China will import a record 5.5 million metric tons in 2015-16, up 8.7% from a year earlier, as domestic production tumbles, the U.S. Department of Agriculture estimates. That will drive demand for supplies from Thailand and India, McDougall said.

Eoin Treacy's view

Sugar is addictive so demand growth tends to remain on a steady upward trajectory. Supply is the major variable and that is true of all commodities not just sugar. Prices trended lower for five years and that means farmers were getting less money every year for the same work. Little wonder then that they decided to plant something with better prospects for a profit. 

Back in 2004 David and I attended the World Money Show in Orlando and I remember talking with someone who asked what my view on Orange Juice was. I said it looked like it had bottomed. He didn’t like that answer at all and in the subsequent tirade said didn’t I realise the orange groves were all getting torn out to make room for housing and farmers were going bust left and right. That was one of the best contrary indicators I’ve seen and prices subsequently soared. I wonder if a similar situation is occurring in sugar.

Sugar rallied in October to break the long progression of lower rally highs and found support in the region of the trend mean, which has now turned upwards, from November.  It broke out to new recovery highs today and while somewhat overbought in the short-term a sustained move below $400 would be required to question medium-term scope for additional upside.