By Zeb Eckert and Claire Leow
Aug. 14 (Bloomberg) -- Sugar may climb 80 percent to as high as 40 cents a pound on global supply shortages, said Singapore-based commodity hedge fund manager Michael Coleman.
“Sugar is caught in a perfect storm,” he said in a Bloomberg Television interview. There is “a big hole” in world supply and no obvious solution in the next six to nine months, said Coleman, 49, managing director of Aisling Analytics, which runs a $1.4 billion fund invested in energy and agriculture.
The sweetener has surged 88 percent this year, reaching a 28-year high, as India, the biggest consumer, had its driest June in 83 years and parts of Brazil, the largest grower, were drenched by rainfall four times more than normal, too wet to harvest. World demand will exceed output by as much as 5 million metric tons in the year ending September 2010, according to the International Sugar Organization.
“Is there a possibility of reaching 40 cents a pound? Certainly,” said Coleman, whose fund returned 24 percent in 2008. “From this point on, it depends how price affects demand.” Sugar reached a peak of 23.33 cents a pound in New York on Aug. 12 and ended at 22.21 cents yesterday.
Investor Jim Rogers and Rabobank Groep NV have said the rally may have some way to go. Rabobank said yesterday it anticipates the “bull” run may not be complete even if prices consolidate around 20 cents a pound.
“Sugar is certainly going to go much, much higher during the course of the bull market,” Rogers, chairman of Rogers Holdings, said in an Aug. 6 interview in Singapore. “Sugar is still 70 percent below its all-time high and not many things in life are 70 percent below what they were in 1974.”
The Indian crop, the world’s second biggest, is “under stress” and “we think it is unlikely to be more than 15 million or 16 million tons” in 2009-2010, said Coleman.
India’s monsoon season, which brings 73 percent of the nation’s annual rainfall, may be the driest in seven years, a weather bureau official said yesterday.
“The world has to depend on Brazil,” Coleman said. There was a question over how much of the country’s cane crop can actually be turned into sugar, he said, as millers have invested heavily in ethanol and “somewhat neglected” the capacity for making sugar.
“Brazil seems to be fairly maxed out in the short to medium term” with “about 43 percent of its capacity able to be delivered to the market as sugar,” Coleman said. Building capacity would take a year, he said, and “we’re still living with the credit crunch so how does the Brazilian sugar refiner raise money? It’s not as easy as it was three years ago.”
World farmers may raise output after prices jumped, he said.
“There’s probably a big bear market coming in 2011 because there will be a supply response,” he said. “But it won’t be in time for the first half of 2010.”
The overall direction of commodities is a “macro call” about world economic growth and the direction of the dollar, and there is not too much clarity, he said. He is inclined to see the dollar stabilize at current levels, he said.
The Reuters-Jefferies CRB Index gained about 16 percent this year, aided by a weaker dollar as investors sought a hedge against inflation, and a recovering global economy. The dollar index, measuring the greenback against six major currencies, has dropped 3.5 percent this year.
In other calls, Coleman said he was “moderately bullish” on the premium of white sugar over raw, and he was long “corn versus wheat” because wheat had large inventories and corn was in a position “to attract incremental demand from biofuel.”
“Corn is more a relative play against wheat,” he said. Wheat is 53 percent more expensive than corn versus a 12-month average of 43 percent, according to data compiled by Bloomberg.
Coleman’s fund return was flat this year to July 31, he said in an e-mail yesterday. His allocation is 35 percent in energy, 30 percent in agriculture and 35 percent in so-called soft commodities and other assets, he said.
The Merchant Commodity Fund won a Eurekahedge award in May 2008 for the Best Asia (based) CTA/Managed Futures Fund, according to the web site of Eurekahedge Pte., a Singapore-based research firm.