Better-than-expected production numbers from sugar cane producers has both sugar prices and the super sweet sugar exchange traded note (ETN) falling off its sugar high. The trend has taken a turn for the worse in kind.

As the diminished demand for Brazilian sugar cane harvest triggered selling, sugar prices have fallen 7.1% to a nine-month low, reports Holly Henschen for The Wall Street Journal. On Tuesday, nearby May world raw sugar fell 1.24 cents to 16.57 cents a pound on the ICE Futures U.S. exchange after reaching a low of 16.40 cents. You can see the sharp reversal in the chart below:

  • iPath Dow Jones AIG Sugar TR Sub-Index ETN (NYSEArca: SGG)

Prices previously surged on expectations of lower output for the 2009-10 crop from the world’s top producer and exporter, Brazil, and the second leading producer and top consumer, India. When Brazil and India’s output turned out better-than-expected, sugar futures plummeted. The Brazilian Sugarcane Industry Association estimates sugar cane output may rise 10% this season to more than 580 million metric tons. If that happens, prices could fall even further. [3 Reasons to Consider ETNs.]

Furthermore, beverage manufacturers and confectioners were loath to pay such exorbitant sugar prices and the lack of demand also drove prices down. [10 Hottest Commodities of 2009.]

Sterling Smith, market analyst at Country Hedging in St. Paul, remarks that “at the moment, the market is coming off of its sugar high pretty badly. Today’s big blowout drop will probably beget more selling.” May sugar could trade down to 15 cents to 16 cents a pound before the bearish trend flips, adds Smith.

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