Sugar prices and commodity-related exchange traded notes sweetened Tuesday after the International Sugar Organization surprised markets with a worsening supply outlook.
On Tuesday, the iPath Bloomberg Sugar Subindex Total Return ETN (NYSEArca: SGG) gained 8.0% and the Tecrium Sugar Fund (NYSEArca: CANE) rose 5.2%. Both SGG and CANE also shot above their long-term, 200-day simple moving average.
ICE sugar futures were 8.9% higher to $0.139 per pound on Tuesday.
Sugar futures jumped after the International Sugar Organization calculated that world production in the 2015 to 2016 period would fall short of production by 5.02 million metric tons, compared to previous estimates for a 3.5 million deficit, Bloomberg reports.
“A statistical deficit is clearly supportive for world prices,” the ISO said. Prices “can be expected to trend generally higher in the remaining months of 2015/16.”
ISO’s worst-than-expected projections comes a week after INTL FCStone anticipated a global supply deficit of 7 million tons.
Sugar prices may be gaining momentum after the strong El Nino weather phenomenon hurt plantings in India, Thailand and Brazil, the world’s top producer.
The ISO data is “helpful” and “reiterates that El Nino is not over; we still don’t have the final tallies on Thai and Indian crops,” Michael McDougall, a senior director at Societe Generale, told Bloomberg. “Pressure is increasing as we move forward, things are getting tight.”
Moreover, Brazilian producers are also converting more sugar into ethanol to meet rising demand for biofuel, especially after the steep depreciation in the Brazilian real has made U.S. dollar-denominated crude oil costlier for domestic users.
iPath Bloomberg Sugar Subindex Total Return ETN
Max Chen contributed to this article.