The Wall Street Journal-20080118-Speculative Funds Lift Sugar
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Speculative Funds Lift Sugar
World raw-sugar futures climbed yesterday as speculative funds and trade houses bought in record volume after ICE Futures U.S. curbed trading activities by Brazilian sugar-ethanol producer Fluxo-Cane Overseas Ltd. Wednesday.
Fluxo and affiliates, including Manoel Garcia of S/A Fluxo, can only place orders in ICE sugar through clearing members and can't trade directly with the floor, the exchange said Wednesday. New York brokers suspect that Fluxo, a hedger on ICE, has been speculating unlawfully in sugar futures and options since early 2007.
The nearby March sugar contract settled 0.68 cents higher in the pit at 12.45 cents a pound, while in after-hours screen trade March finished up 1.24 cents at a 14-month high of 13.01 cents.
"Fluxo reduced futures and options positions today, some at a profit and some at a loss," said Hiroyuki Takada, director of Optrize Traders House Inc. in New York. "They were covering long and short positions in options. Options volume was huge."
Long positions are usually expectations prices will rise, while short positions anticipate lower prices.
New York traders said clearing members, worried about risk associated with Fluxo's many positions, appear to have pressured ICE Futures U.S. to do something about the producer's speculative endeavors.
Bruce Cleary, of ICE floor brokers J&F Commodities, said "since Fluxo works through different clearing firms, it's still not evident what their net position in ICE sugar is." Traders said Fluxo also has over-the-counter positions in sugar derivatives that are tough to quantify.
Mr. Cleary said "the Fluxo decision was a gift for speculative longs, and some of them took big profits after a two-day run-up."
Some firms are believed to have lost money as a result of Fluxo's recent heavy trading, however. Various brokers and trade houses are upset with Fluxo and feel they incurred losses because the firm pushed the ICE market around at times.
Traders said ICE Futures U.S. appears to have dragged its feet in curbing Fluxo's trading because the producer's heavy volume lifted ICE volume. ICE Futures U.S. spokeswomen declined to comment yesterday, as did the chairman of the ICE Futures U.S. board of directors.
The government oversight agency for futures trading, the Commodity Futures Trading Commission, also isn't commenting.
In other commodity markets:
CRUDE OIL: Futures fell to their lowest close in five weeks amid fears that a flagging U.S. economy would dampen the nation's thirst for oil. Light, sweet crude for February delivery settled 71 cents, or 0.8%, lower to $90.13 a barrel on the New York Mercantile Exchange. Crude has fallen for three straight sessions and in nine of the past 11.
WHEAT: Futures rose on bullish trading momentum, supply concerns and strong export demand, led by record-setting highs at the Minneapolis Grain Exchange. At the MGE, nearby March wheat rose its daily limit 30 cents a bushel to $11.6475.
