The raw sugar price dipped below the 11 US cents per pound mark yesterday for the first time since December 2008. The further depreciation of the Brazilian real to a new 12-year low against the US dollar yesterday was doubtless one of the reasons.



Being the largest producer and exporter, Brazil plays a key role in what happens on the international sugar market. The fact that the "optimism" shown for a time by short-term-oriented market participants, which prompted them to reduce their net short positions pretty much to zero, has now dissipated again entirely is likely to have contributed to the negative price performance since mid-July.



They have built up their net short positions considerably again in the past two weeks. Then there is the fact that drier weather conditions look set to facilitate harvesting following many weeks of excessive rainfall in key Brazilian sugar cane regions.



The Brazilian Sugarcane Industry Association (Unica) had previously warned that the targeted crop of 590 million tons of sugar cane might not be achieved in the Center-South region unless a change in the weather were forthcoming.



The low prices are also exacerbating the problems for other suppliers. In India, for instance, they mean that there is little export incentive despite the existing export subsidies for raw sugar.



"The high domestic supply is likewise driving domestic prices down. This makes it hard for many mills to pay their sugar cane suppliers whom they still owe outstanding payments from the last harvest", says Commerzbank.