By Carolyn Cui 
 

Sugar prices soared to their highest levels in three-and-a-half years on Wednesday, bolstered by speculation that a trading house was set to take another big physical delivery off the commodity exchange.

Raw sugar futures for July delivery rose 4.4% to 20.68 cents a pound on the ICE Futures U.S. exchange. The commodity was on track to settle above the closely watched price level of 20 cents, which would also be the highest price level for the front-month sugar contract since October 2012.

Wednesday's strong price moves surprised many market participants. "Everything should actually point to a lower market than this," said Bruno Conte de Lima, head of sugar and ethanol in Brazil at INTL FCStone Financial Inc. For example, concerns over heavy rainfall in Brazilian growing areas were alleviated by forecasts of dry weather for the next 15 days, helping mills and producers pick up the crushing operations that were delayed by the weather.

But traders noted that there were still 32,006 contracts left as of Tuesday in the July contract, which would expire by the end of Thursday. This has fueled speculation that some traders were ready to take delivery--a sign of robust demand in the physical market.

Over the past year or so, Singapore-based commodity company Wilmar International Ltd. has bought more than $1 billion worth of sugar through the exchange.

Analysts at INTL FCStone now expect between 800,000 and one million tons of sugar would be asked from when the July contract rolls off the board. The July contract currently trades at a deeper discount to the October contract than the prices in the physical market, suggesting that an effort to lift sugar from the exchange could be justified.

This year, sugar prices have rallied more than 35%, largely supported by a consensus that after five years of surpluses, consumption will exceed supply for the next two years. At the same time, a stronger Brazilian real has also increased the profitability of Brazilian producers' export sales. The market has since attracted many financial players to make bets.

The concern now is how much higher sugar prices could go without any fundamental support, Mr. Lima said.

In other markets, cocoa for September added 0.8% to $3,029 a ton, arabica coffee for September rose 2.3% to $1.4395 a pound, frozen concentrated orange juice futures for July gained 1.5% to $1.7260 a pound, and December cotton added 0.3% to 66.03 cents a pound.

 

Write to Carolyn Cui at carolyn.cui@wsj.com

 

(END) Dow Jones Newswires

June 29, 2016 12:05 ET (16:05 GMT)

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