Sugar edges higher but gains limited on ample supplies

Forexpros – Sugar futures edged higher on Tuesday, boosted by a broadly weaker U.S. dollar, however prices continued to trade close to last week’s five-month low amid concerns over ample global supplies.

On the ICE Futures U.S. Exchange, sugar futures for March delivery traded at USD0.2322 a pound during European afternoon trade, edging up 0.24%.

It earlier rose by as much as 0.5% to trade at a session high of USD0.2327 a pound. Prices fell to a five-month low of USD0.2263 a pound on December 15.

Sugar’s gains came as the dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, declined 0.6% to trade at 80.46.

A weaker dollar boosts the appeal of U.S. commodities to overseas buyers and makes raw materials more attractive as an alternative investment.

However, gains were limited after the Indian Sugar Mills Association said earlier that India's sugar output from the start of the 2011-12 marketing season, which began on October 1, through December 15 rose nearly 19% to 4.58 million metric from 3.86 million tons a year earlier due to higher crushing in major growing regions.

Production in Maharashtra, the country's largest sugar producing state, increased to 1.75 million tons from 1.63 million tons, while sugar output in Uttar Pradesh, the second-biggest producer, jumped almost 50% to 1.29 million tons.

The upbeat production outlook could prompt the country to increase sugar exports. The country has already allowed one million tons of sugar exports in the current marketing season.

India is the world's second largest sugar producer. It exported approximately 2.6 million tons of the sweetener in the 2010-11 marketing year.

Global financial service provider Barclays said in a report Monday that “a global surplus as well as India's recent decision to export 1 million tonnes, with the potential for additional exports” was likely to cap any significant move to the upside.  

Sugar prices have been under pressure in recent weeks, losing nearly 10% since the beginning of November, as increasing competition for U.S. exports has been dominating sentiment.

Elsewhere, on the ICE Futures Exchange, cotton futures for March delivery jumped 1% to trade at USD 0.8797 a pound, while coffee futures for March delivery added 0.85% to trade at USD2.2150 a pound.