Sugar slides from 17-month high as Indian import prospects ease

Raw sugar prices fell from a 17-month peak as expectations of significant imports into India diminished due to government measures to increase domestic supply. Futures markets in New York fell by up to 4.8% on the day, their largest drop since May. Prices surged by more than 21% in the previous month, pushing them into overbought territory due to tight supply in the second-largest producer and forecasts of a global deficit in the upcoming season.

India's decision to permit up to 1 million tons of duty-free raw sugar imports initially fueled the rally, but falling domestic prices have since reduced expectations of overseas purchases, according to Rabobank. The government has further restricted the amount of sugar that dealers can hold to prevent hoarding and increase availability domestically.

These measures have helped release more stockpiles onto the market, according to Rahil Shaikh, managing director of MEIR Commodities India Ltd. He anticipates India to import between 500,000 and 600,000 tons. "Prices in India have softened because government measures imposing stock limits have ensured that stockpiles in the pipeline have been released," he explained.

"The country still faces significant supply constraints." The sugar market's recent surge has pushed its 14-day relative-strength index above 70, indicating potential overvaluation, while the short-covering that contributed to the rally is weakening, making prices more susceptible to selling. Additionally, sugar has become more lucrative than ethanol in Brazil's leading producer, potentially encouraging mills to allocate more cane to produce the sweetener.

However, the sugar market is forecast to face a substantial deficit due to El Nino weather conditions threatening output in major Asian producers and drought in Europe reducing output.