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Sugar ETFs Turn Bitter

After showing a brief recovery in September, sugar exchange traded funds and notes are turning bitter on demand concerns and growing supply.

Sugar ETPs were the worst performing unleveraged fund products last week. The iPath Dow Jones-AIG Sugar Total Return Sub-Index ETN (SGG) dropped 5.5%, iPath Pure Beta Sugar (SGAR) lost 6.0% and Teucrium Sugar Fund (CANE) declined 5.3% over the past week.

Trading 2% lower, sugar futures continued to lose strength Friday after shedding 4% in the previous session.

Speculators were liquidating positions amid talks that importers were turning away cargo, report Nigel Hunt and Josephine Mason for Reuters. Rumors of sugar washouts – when buyers give up on obligations to take physical delivery and, instead, take a penalty – in China and India exacerbated the sell off.

Buyers were canceling hundreds of thousands of tons worth of contracts after hitting a high in mid-July on supply concerns, but prices have since dropped 15%.

“This is a technical breakdown precipitated by rumors of washouts not yet confirmed,” Michael McDougall, a vice-president for brokers Newedge U.S., said in the Reuters article. “Washout talk generally filters down after the fact, but where there’s smoke, there’s fire.”

Sugar imports to China, the world’s largest sugar consumer, could decline as much as half in the season to September 2013 due to domestic output, competition from substitute sweeteners, high inventories and a slow economy.

“Lower import demand overall, especially from Russia and China, remains a drag on this market, and production growth elsewhere will still lead to another surplus globally,” Kona Haque, Macquarie analyst, said in a note.

On the supply side, Brazil, the world’s top producer, is set to export about 2.17 million metric tons of sugar, a 31% jump over the pas week, reports Isis Almeida for Bloomberg.

iPath Dow Jones-AIG Sugar Total Return Sub-Index ETN

For more information on sugar, visit our sugar category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.