Sugar Prices slides as Speculator Pull Out from market

Sugar prices continued their sharp slide on Friday following the biggest one-day sell-off in 30 years the previous day as speculators pulled out from the market in the wake of dizzying gains.

ICE March raw sugar dropped 3.6 per cent to 28.59 cents a pound - down 14.5 per cent from the 30-year peak reached on Thursday morning.

The sell-off started after the European Commission granted further export licences for the commodity and gathered steam as India's agriculture minister said New Delhi's sugar surplus in 2010-11 could reach 3.5m tonnes, up from previous estimates of 2.5m tonnes.

Some hedge funds took the news as a bearish signal and began selling heavily, traders said. It quickly escalated into a rout as falling prices triggered a string of automatic sell orders on the way down, they said.

One trader said: "It is a total meltdown, totally unexpected. There is no explanation. We have hit technical level after technical level."

Michael McDougall, at Newedge brokers in New York, said: "We have seen a good clean-up of speculators." Liffe December white sugar was down 5.7 per cent at $751.80 a tonne. The sharp reversal in prices within 24 hours wiped out two weeks of gains.

In contrast to other agricultural and soft commodities such as corn or wheat, the ICE Futures exchange in the US does not set daily variation price limits for raw sugar futures that would limit movements. ICE declined to comment.

The sharp swing came only weeks after Jonathan Drake, head of sugar at Cargill, the largest trader of the sweetener, warned of "a period of extreme volatility" because of to "very significant imbalances in the market".

Elsewhere, commodities suffered a correction across the board, led by selling in Asia after China's surprisingly high inflation data on Thursday sparked fears the central bank would raise interest rates.