Sugar Prices Rebound

NEW YORK ( TheStreet) -- Sugar prices were rebounding Monday morning as long speculators held onto hope of more upside potential for sugar -- though their patience may be wearing thin.

"Despite the decline in sugar prices, many long speculators appear to have been slow to liquidate their long positions," said optionsXpress analysts Mike Zarembski and Rob Kurzatkowski.

"The most recent Commitment of Traders Report shows large non-commercial traders holding a net-long position of 118,862 contracts as of April 26th" -- much less than the record-long positions seen in 2008, but nevertheless a large position.

July sugar futures were rising 1.5% to 20.78 cents a pound, but were down more than 20% year-to-date on stronger supply expectations for Brazil, the world's leading sugar producer, as well as the possibility of more shipments out of India.

"Thailand is looking to sell nearly 177,000 metric tons of raw sugar this week , and many traders will be awaiting the results of the tender to see how aggressive pricing will have to be to attract buyers," adds Zarembski and Kurzatkowski.

In its latest forecast, the Brazilian Sugarcane Industry Association (UNICA), in conjunction with the Center for Sugarcane Technology (CTC) and other sugar and ethanol producer associations in South-Central Brazil, forecasts that the sugarcane harvest for the 2011 to 2012 period will rise 2.11% to 568.5 million tons from 556.74 million tons in the previous harvest.

However, UNICA cautions that the average productivity could still decline due to aging cane fields, a reduction of sugar cane that has been growing for nearly two years to less than 3% of the total planted area this harvesting year versus 14% this past year, and unfavorable weather.

According to Rabobank's CFTC Commitment of Traders report on May 9, total open interest in agricultural commodity futures and options has declined for a fourth consecutive week to 6.5 million contracts -- the smallest since September 2010.

Meanwhile, money managers registered the largest weekly reduction in their net long position since March 15, down 76,063 contracts. They pared back in all agricultural commodities except sugar, according to Rabobank.

Managed money increased their net long position in No. 11 raw sugar on the Intercontinental Exchange by 2,572 contracts to 98,284 contracts, increasing their share of total open interest to 17.7% -- the largest since August 2010, according to Rabobank.

"Although sugar futures seem poised for further declines, the market may have become a bit oversold in the near-term," said the optionsXpress analysts. Still, "these large speculators may eventually throw in the towel and spark further weakness as their long positions are liquidated."

Food and drink stocks were trading in mixed territory. Kraft Foods ( KFT) was down 0.5% to $33.91, The Hershey Company ( HSY) was flat at $56.06, Magnum chocolate Unilever ( UL) was down 0.3% to $32.15 and PepsiCo ( PEP) was rising 0.6% to $69.71.

Pepsi rival Coca-Cola Company ( KO) was flat at $66.87 and smaller peer Dr Pepper Snapple Group ( DPS) was trading sideways at $39.27. Natural soda company Hansen Natural Corporation ( HANS) was falling 0.5% to $64.44.

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-- Written by Andrea Tse in New York.

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