White Sugar Drops as Recession Fears Prompt Commodity Sell-Off

By Marianne Stigset

Sept. 23 (Bloomberg) -- White sugar fell the most in a week in London as investors sold commodities on concern that the U.S. government's plan to buy $700 billion of bank assets won't prevent a global recession.

Stocks in Europe and Asia declined, led by financial companies and commodity producers, and raw materials from crude oil to gold and corn dropped on speculation economic growth will slow. Europe's manufacturing and service industries contracted for a fourth month in September as the credit-market seizure intensified and companies scaled back production.

``Everyone is a little bit frightened, there's such intense volatility,'' Jonathan Kingsman, head of sugar and ethanol research company Societe Kingsman SA, said by phone from Lausanne, Switzerland. `` The investment community currently resembles a herd of terrorized impala which could turn and dart off in any and all directions at the same time.''

White sugar for December delivery fell as much as $11.70, or 3 percent, to $383.50 a metric ton on the Liffe exchange in London, and stood at $390.80 as of 2:14 p.m. The contract gained 5 percent yesterday, the biggest jump since Feb. 8.

Raw sugar futures for March delivery slipped 0.12 cent, or 0.8 percent, to 14.14 cents a pound on ICE Futures U.S.

With the U.S. financial markets in turmoil, U.S. Treasury Secretary Henry Paulson is seeking to implement a $700 billion plan that will allow the U.S. to purchase illiquid assets such as mortgage-related securities from banks.

Rescue Plan

The rescue plan was conceived after Lehman Brothers Holdings Inc. filed for the largest bankruptcy in history, the U.S. government seized control of American International Group Inc., and Merrill Lynch & Co. rushed into an alliance with Bank of America Corp.

World demand for sugar will surpass output by 3.8 million tons next season, ending two years of surplus, according to Kingsman. ``Overall, I'm moderately positive for sugar,'' because of the deficit, he said.

More sugar will also be used to make ethanol. Brazil, the biggest ethanol exporter, will almost triple output by 2020, country's the Center-South Sugar and Ethanol Industry Association, known as Unica, said last week.

Brazil will produce 65 billion liters (17 billion gallons) in 2020, up from 22.5 billion liters in the current April to November season, according to Unica.

Among other agricultural commodities, cocoa futures for December delivery rose 4 pounds, or 0.3 percent, to 1,517 pounds ($2,811) a ton on Liffe. Robusta for January delivery dropped $16, or 0.7 percent, to $2,160 a ton on Liffe.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net