Sugar prices suffered their biggest one-day sell-off in 30 years on Thursday, tumbling by as much as 11 per cent after speculators pulled out from the market in the wake of dizzying gains.
The sell-off, which came just hours after the sweetener hit a 30-year high, started after the European Commission granted further export licences for the commodity, a move widely expected among physical sugar traders.
But some hedge funds took Brussels’ decision as a bearish signal and began selling heavily, traders said. The selling quickly escalated into a rout as falling prices triggered a string of automatic sell orders on the way down, they said. “It is a total meltdown, totally unexpected. There is no explanation,” one bullish trader said. “We have hit technical level after technical level,” he added.
India’s production swings, which move the country back and forth from exporter to importer, are an important influence on global sugar prices. India, the world’s biggest consumer of sugar, is set to announce its plans for exports later this month. Many traders believe that New Delhi will authorise only limited exports.
The sharp reversal in prices wiped out two weeks of gains from the sugar market and left traders asking whether the market had reached a short-term top or if further gains were possible due to supply problems.
In contrast to other agricultural and soft commodities such as corn or wheat, the ICE Futures exchange in the US does not set daily variation price limits for raw sugar futures that would limit movements. ICE declined to comment.
The sharp swing came only weeks after Jonathan Drake, head of sugar at Cargill, the largest trader of the sweetener, warned in an interview with the Financial Times of “a period of extreme volatility” due to “very significant imbalances in the market”.