Sugar futures rise up from the grave as numbers recovered from its one-year low amidst the ideas that their fall has driven futures in the “ground” of the ethanol parity, where it becomes as profitable for processors to run cane into biofuel as a sweetener.
Sugar futures for July were up by 0.9% and were being sold at 15.44 per pound in the New York markets. This would be its first recorded winning session for the week.
The recovery in the contract, after a fall of almost 35% in prices in the past three months, came with a debate about whether prices would fall far enough to reach equality in ethanol, at which point sugar would lose the edge over ethanol in terms of the Brazilian sugar mills’ processing margins.
If the parity of ethanol continues this downward direction, this would mean that “we could lose up to 6 million tons of supply” as stated by Marex Spectron
From a different point of view, Sucden Financial said that Ethanol Parity, which it put at below 15 cents a pound is “being talked about as a possible floor” to sugar prices.
At the Commonwealth Bank of Australia, Tobin Gorey, pegs ethanol parity as an equivalent to a sugar price about 14.50 cent per pound, said that values of the sweetener may need to trade below that level, to provide an incentive to cut back on supplies.