White Sugar Declines as Crude Oil Drops, Dollar Strengthens

By Marianne Stigset

Nov. 20 (Bloomberg) -- White sugar fell for a second session as the dollar strengthened, diminishing the appeal of commodities as an alternative investment, and crude oil weakened.

The Dollar Index, which measures the currency against six counterparts, gained for a third day this week. Crude oil fell for a fifth consecutive day, nearing $50 a barrel, as the weakening world economy increased concern that demand for fuels will slow. Lower oil prices may reduce growth in ethanol output, boosting sugar supply, Morgan Stanley said in a report yesterday.

``Weak oil prices will mitigate the desire for ethanol expansion,'' Hussein Allidina, an analyst at New York-based Morgan Stanley, said in the report. ``We are reducing our price forecasts to reflect markedly lower crude oil prices in the near term and a slightly softer balance in 2009-10.''

White sugar for March delivery fell $2.50, or 0.8 percent, to $322.50 a metric ton as of 12:23 p.m. on the Liffe exchange in London. The sweetener has gained 2.4 percent this year, compared with a 31 percent drop in the UBS Bloomberg CMCI Index of 28 raw materials.

Raw-sugar futures for March delivery fell 0.9 percent to 11.57 cents a pound on ICE Futures U.S. in New York.

Sugar will average 12.5 cents a pound on ICE Futures U.S. in the year ending Sept. 30, down from an April forecast of 13.3 cents, Morgan Stanley said. The price will average 14 cents in the 12 months ending in September 2010, down from 16.2 cents projected earlier, and will rise to 19 cents in the period ending in 2011, the bank said.

Sugar Deficit

``We remain bullish long-dated sugar,'' Allidina wrote. ``After three years of record surpluses, we now see the sugar market moving into at least three years of deficit, owing to the lagged impact of price on production.''

Global demand will exceed output by 1.8 million tons in the year through September, with the deficit reaching 4.8 million tons in the following 12 months, Allidina said.

Indonesia, Southeast Asia's biggest sugar buyer, is aiming to export the sweetener next year as it expects production to exceed consumption.

``The opportunity for export is widely open,'' Bayu Krisnamurthi, a deputy to the coordinating minister for Economic Affairs, told reporters today.

Among other agricultural commodities, cocoa futures for December delivery slipped 14 pounds, or 0.9 percent, to 1,473 pounds ($2,190) a ton on Liffe. Robusta coffee for January delivery climbed $10, or 0.6 percent, to $1,816 a ton on Liffe.

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