In yet another sign that the QE II Bet is Unraveling, over a month’s worth of gains in the sugar futures market went into the dustbin in two days.

Bloomberg reports Sugar Prices Fall Record 12% in London, Most in 22 Years in N.Y.

Refined-sugar prices plunged by a record in London, and raw-sugar futures in New York tumbled the most in 22 years as speculation that China will boost borrowing costs roiled commodity markets.

China may increase interest rates soon in a bid to cool inflation, according to Bloomberg News survey. Raw materials tumbled on concern that demand for crops will ease in the Asian nation, the biggest consumer of many commodities. Prices also fell after ICE Futures U.S. raised margins on contracts by 65 percent. Europe announced plans to increase sugar exports.

Refined-sugar futures for March delivery fell $91.50, or 12 percent, to close at $677.10 a metric ton, marking the biggest drop ever. The price fell 2.8 percent yesterday after the EU said it also plans to lift import duties.

Raw-sugar futures plunged 3.45 cents or 12 percent, to settle at 26.21 cents on ICE. The single-day drop and this week’s slide of 17 percent were the most since July 1988.

The margin requirement, or amount of money traders must keep on deposit, rose to $4,970 per speculative contract from $3,010, ICE said.

Raw Sugar Daily

Raw Sugar Weekly

I see no reason why sugar couldn’t or even shouldn’t fall back to the 14-18 area, wiping out the entire runup.

Soybeans, Corn Lock-Limit Down

It’s not just sugar that got whacked hard. Please consider Soybeans, Corn Plunge as Commodities Drop on China Rate Concerns

Soybeans and corn fell the most allowed by the Chicago Board of Trade on speculation that China will raise interest rates soon, cubing demand for commodities.

Equities in China tumbled the most since August 2009 after a report yesterday showed that consumer prices in October rose 4.4 percent from a year earlier, the fastest pace since 2008. China is the world’s biggest consumer of soybeans and second- largest user of corn. The Thomson Reuters/Jefferies CRB Index of 19 raw materials fell 3.6 percent, the most since April 2009.

“The risk of rising Chinese rates increases the chances for demand to slow,” said Dale Durchholz, the senior market analyst at AgriVisor LLC in Bloomington, Illinois. “The message is, China is taking a more aggressive stance to cool inflation and push speculative money out of commodities.”

Corn futures for March delivery dropped 30 cents, or 5.2 percent, to close at $5.48 a bushel, the biggest drop since Oct. 1. The price has gained 46 percent since the end of June, reaching a 26-month high of $6.175 on Nov. 9, after adverse weather reduced the size of the U.S. crop.

Soybeans also fell on speculation that China will reduce imports because the government may sell supplies to damp inflation, said Greg Grow, the director of Agribusiness for Archer Financial Services Inc. in Chicago.

The country may begin selling from inventories next week to limit gains in food prices, said Cao Huimin, an analyst at China Cereals & Oils Business Net, a researcher in Beijing. The sales may total as much as 2.6 million tons, she said after discussions with cash traders.

“Chinese release of soybean stocks next week cast a negative shadow over the market,” Grow of Archer Financial said. “Most of today’s weakness in commodities was an exodus of funds and speculators.”

Soybeans Weekly

Soybeans did not hit the speculative peak they did in summer of 2008, but there is virtually nothing to like about this price action technically or fundamentally. Technically I would expect a pullback to the 1000 area.

Bear in mind I am a long-term commodity bull. However, this love-fest with QE II has gotten more than a little bit out of hand. To make matters worse, China is clearly overheating, something I have warned about all year.

Think twice about buying this dip.

Mike “Mish” Shedlock
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