speculative investors have built a record position in sugar this year, sparking fears of a swift pullback in its price. investors such as hedge funds own around 26% of the new york sugar-futures market, according to data from the commodity futures trading commission. that is down from a third in october, but speculators still own a huge pile of sugar by historical standards<u+2014>around $5.35 billion worth, at current prices. some analysts say that a recent and gradual sell-down shows that fears of a disorderly exit are misplaced. but others point to a precedent that worries them: five years ago, speculative investors sold off what was until this year their biggest bullish position <u+200b>on record, accelerating the price fall that had triggered their move. key to the market will be factors such as india<u+2019>s harvest in early 2017, which accounts for around 15% of the global crop. donald trump <u+2019>s u.s. election victory has added to the selling pressure on sugar: brazilian producers have been selling more sugar to capitalize on a sharp fall in the real against the dollar since the vote, according to traders. <u+201c>if everybody heads for the door at once, we might see the same sort of pullback we saw in 2010-11,<u+201d> said gillis danielsen, a portfolio manager at commodities investor estlander & partners gmbh, which has $364 million in assets under management. on monday, the cftc said that speculators slightly increased their bullish position in sugar recently, after four weeks of selling. as of nov. 8, their net long position accounted for 26.2% of the market, up from 26% a week earlier<u+200b> but down from a peak of 32.3% in early october. that selling has weighed on sugar futures, which have slumped nearly 10% since the market peaked on sept. 29. but so far, the market hasn<u+2019>t collapsed, and is still up 39% for the year, leading some analysts to suggest these funds may be holding on for higher prices. <u+201c>the fears pre-election of a fund exit seem to have completely receded,<u+201d> tom kujawa, co-head of soft commodities at trading house sucden financial ltd., wrote in a research piece on tuesday. other market participants are less sure. some worry that if the downward drift restarts, some speculators may dump their holdings. speculative investors are typically seen as taking a shorter-term view on some markets. their buying had helped lift sugar prices to a 4<u+00bd>-year high in september as the market went from surplus to deficit for the first time in six years. that deficit came as drought associated with the el ni<u+00f1>o weather phenomenon curbed indian production by 10% last year to 27.7 million tons. more bad news from india and elsewhere in asia early next year could push the sugar price higher. prices could go <u+201c>much higher<u+201d> if india<u+2019>s stocks run low and it becomes reliant on imported sugar to meet its needs, said christian gerlach at global asset management, which had $122.9 billion under management at the end of september. mr. danielsen said he expects further gains in the sugar price because of the so-called backwardation of the market, which means it costs more to buy futures for delivery in the near term than it does to buy further in the future, an indication that supplies are currently short. <u+201c>we still see that this long-term momentum is intact,<u+201d> he said, though his firm cut back on its position. before the current rally , the sugar price had been falling since 2011 after a huge increase in brazilian production capacity wasn<u+2019>t matched by an uptick in demand. but this year, drought has hit harvests in asia. meanwhile, years of lower prices have starved heavily indebted brazilian sugar growers of money to invest in their plantations, a situation that some analysts see as a threat to future output from the world<u+2019>s biggest producer. <u+200b>in the long term, analysts expect rising production to bring an end to the current price rally. a recovery in india<u+2019>s output would ease the global deficit, while production in the european union is widely expected to increase after the removal of a production cap in october 2017. arnaldo luiz correa, at brazil-based archer consulting, said he expects funds to gradually liquidate their position into next year, pushing sugar futures down to 18 or 19 cents a pound. new york sugar futures closed down nearly 3% at 21.12 cents a pound. for now, most speculators will be still sitting on profits, having entered the market at lower levels, according to oliver kinsey, a portfolio manager at commodities hedge fund ballymena advisors<u+200b> who examined the cftc data. write to ed ballard at ed.ballard@wsj.com
speculators sit on sugar pile, raising fears of selloff  - wsj
ed ballard