Sugar futures drop as Greece crisis overshadows Brazil crop fears

Forexpros - Sugar futures declined on Thursday, giving back some of the previous day’s gains as mounting fears Greece was headed towards a messy sovereign debt default overshadowed concerns over sugar crop conditions in Brazil.

On the ICE Futures U.S. Exchange, sugar futures for March delivery traded at USD0.2428 a pound during European afternoon trade, retreating 0.96%.

It earlier fell by as much as 1.15% to trade at a session low of USD0.2425 a pound.

Sugar’s losses came as market sentiment was rattle amid reports that European Union officials were looking at ways to delay the second Greek bailout until after general elections in April.

A three-hour teleconference call between euro zone finance ministers failed to resolve all the issues surrounding a second aid package for Athens, putting off any decision on the matter until Monday at the earliest.

Greece has a EUR14.5 billion bond repayment due on March 20 and requires the bailout funding in order to be able to make that payment and avoid a messy default.

The news prompted investors to shun riskier assets, such as agricultural commodities and global equities and flock to traditional safe haven assets like the U.S. dollar.

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.57% to trade at 80.20, the highest since January 25.  

A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.

Also weighing on prices, China’s central bank said Wednesday in its quarterly monetary-policy report that the country still faces the risk of slower growth and higher inflation.

China is the world’s largest sugar consumer. Hopes for increased Chinese demand for the sweetener have helped support prices in recent weeks.

Meanwhile, sugar futures continued to draw support from concerns over crop conditions in Brazil. Industry group Unica said on Wednesday that sugar production in the country’s Center South fell 6.8% to 31.2 million metric tons through February 1, compared to 33.5 million tons a year earlier.

Crops in the Brazil’s Center South-region, which produces nearly 90% of the nation’s sugar and ethanol, were damaged by freezing weather last year and by drought in previous harvests.

Brazil is the world’s largest sugar producer and exporter, with the U.S. Department of Agriculture estimating the nation accounts for nearly 20% of global production and 39% of global sugar exports.

Elsewhere on the ICE Futures Exchange, cotton futures for March delivery fell 0.42% to trade at USD0.9211 a pound, while Arabica coffee for May delivery eased 0.05% to trade at USD2.0293 a pound.