BRICS Back

Resurgent growth is reviving one of the past decade’s hottest trades.

Emerging-market investors are again piling into the so-called BRIC nations — Brazil, Russia, India and China — pushing monthly inflows and stock prices to nearly two-year highs. The bet is that a pickup in the global economy will fuel demand for the countries’ commodity exports, drive an expansion of middle-class consumption and help them shore up fiscal accounts.

Wooed by India’s efforts to streamline regulations, Brazil’s economic rebound, stabilizing prices for Russian oil exports and China’s stronger currency, traders are warming to the countries’ higher yields and better outlook for equities. It’s an abrupt reversal after they were scorched by a 40 percent drop in the biggest BRIC exchange-traded fund from the end of 2012 through early 2016 as Brazil lost its investment grade, Chinese growth slowed from a meteoric pace, Russia’s oil revenue plummeted and India’s current account deficit swelled.

“Improving fundamentals, attractive valuations, and high yields in a yield-starved world make emerging markets once again attractive, including some of the BRICs,” Jens Nystedt, a New York-based money manager at Morgan Stanley Investment Management overseeing $417 billion in assets, wrote in an email.

Non-resident portfolio flows into BRIC nations rose to $166.5 billion last month, up from $28.3 billion in outflows 12 months prior, according to data compiled by the Institute of International Finance and EPFR Global. Chinese equities saw their biggest quarterly inflows in two years, while traders piled into Indian bonds at the highest level in almost three years, Bloomberg data show.

Mark Mobius, executive chairman of Templeton Emerging Markets Group, favors Brazil, China and India, adding that Russia will also benefit from a growth rebound. Brazilian assets will benefit as Latin America’s largest economy bounces back from two years of contractions, while Chinese investment will pick up as its foreign reserves recover from a six-year low in January, according to Steve Hooker, who helps oversee $12 billion of assets as an emerging-market money manager at Newfleet Asset Management.

Fastest Growth

Coined in 2001 by former Goldman Sachs economist Jim O’Neill, “BRICs” became a ubiquitous shorthand for the fastest-growing emerging economies (other investors later capitalized the S and added South Africa to the mix).

In the decade ending Dec. 30, 2012, developing-nation equities had annual returns of 17 percent, twice those of developed nations. That changed in the taper tantrum years amid fears that the Fragile Five, which included Brazil and India, would struggle to meet high external funding needs. Responding to changing sentiment, Goldman Sachs Group Inc. shut its BRIC fund in October 2015 after losing 88 percent of its assets since a 2010 peak.

Cheerio

Mt Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

 

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People Getting Serious About Marijuana

The taboo’s about even discussing the green weed have slowly relaxed over the last decade. It’s medical benefits have long been lauded despite the obvious stigma.

Imperial Brands Plc gained the services of a leader in the field of medicinal cannabis as the British tobacco manufacturer seeks to further its push beyond cigarettes.

Simon Langelier, a 30-year veteran of Philip Morris International Inc., joined the board as a non-executive director this week, the Bristol-based company said in a statement Tuesday.

Langelier is chairman of PharmaCielo Ltd., a supplier of medicinal-grade cannabis oil extracts. He joined the Canadian-based company in 2015 after a career at Philip Morris that included heading up the next-generation products unit from 2007 to 2010. Imperial stands to benefit from his experience in tobacco and “wider consumer adjacencies,” Chairman Mark Williamson said in the statement.

About 18 months after jettisoning the word “tobacco” from its name, the appointment advances Imperial Brands’s efforts to move beyond its main product, as smoking rates in developed nations dwindle. While focusing on e-cigarettes, Imperial previously resisted another alternative to cigarettes — heated tobacco devices, but that stance could be easing. Philip Morris’s main reduced-risk product is a heated tobacco device called iQOS.

In May, Imperial’s Chief Development Officer Matthew Phillips said the company was assessing whether demand for heated-tobacco devices would pick up outside of Japan, where iQOS has captured 7.1 percent of the country’s cigarette market since its launch in 2015. The company could have a product on the market within months, if needed, he said.

“Imperial’s one-pronged strategy in next-generation tobacco isn’t particularly wise,” Eamonn Ferry, an analyst at Exane BNP Paribas, said by phone. “It’s sensible that they appear to be now softening their stance on heat-not-burn, given the success of the format in Japan.”

At Philip Morris, Langelier established a joint venture for the worldwide commercialization of the company’s smoke-free products.

His experience at PharmaCielo will be beneficial in helping Imperial eke out opportunities should marijuana be legalized at the federal level in the U.S., Ferry said. The expertise tobacco firms have in crop farming and distribution has spurred speculation that they may eventually seek to enter the cannabis market. Cowen & Co. estimates the U.S. part of the industry will surpass $50 billion in sales this decade.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Russian Grain Gain

Russia’s wheat fields are expected to see warm, dry weather in the next two weeks, a relief for farmers that have struggled with a cold and soggy planting season.

Wet fields of winter wheat will start drying out, which would benefit the crop to be harvested next month, according to Commodity Weather Group. Later in June, most models show rain will return, which would replenish soil moisture and keep the crop in good shape, said David Streit, a forecaster for the Bethesda, Maryland-based firm.

“Russia has a good soil moisture supply in place going into this drier spell that the wheat can tap into,” Streit said, adding that the dry weather will help prevent disease.

Bad weather has lowered expectations for Russia’s total grains production, and traders are closely watching weather forecasts ahead. Earlier this month, the Agriculture Ministry cut production estimates to as low as 100 million metric tons from a previous forecast of 110 million tons, according to a report from Tass news service, which cited an interview with the minister.

Cold, Wet

Earlier in the year, cold weather in central and southern Russia, the main areas for winter wheat, raised the risk of delays to the wheat and barley harvest. It’s also possible that central and eastern Ukraine, and central portions of Russia’s North Caucasus could see lower yields, said Kyle Tapley, a senior agricultural meteorologist at MDA Weather Services.

“I don’t see major problems for the winter wheat except for some falling behind with vegetation, but it is not the major issue,” said Dmitry Rylko, director general of Institute for Agricultural Market Studies in Moscow.

The weather could be a bigger problem for spring crops, such as wheat, barley and corn, which are falling behind in planting and development, he said.

In the spring-wheat areas of Volga region and the Urals, the fields will likely remain cold and wet over the next 10 days, which could slow planting and early crop growth, said Tapley of MDA. However, conditions could improve later in the season, he said.

Sowing of spring wheat, the smaller of the two main wheat harvests in Russia, are lagging behind last year’s pace. Plantings account for 12.5 million hectares (30.9 million acres) as of June 2, compared with 13.3 million hectares a year before, according to the Agriculture Ministry.

Spring wheat, mainly grown in Siberia, usually accounts for a third of Russia’s total harvest.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Who Needs Oil

Last year saw 161 gigawatts (GW) of renewable power capacity installed, a new report from the Renewable Energy Policy Network for the 21st Century (REN21) says.

According to the Renewables 2017 Global Status Report, released on Wednesday, solar photovoltaic represented roughly 47 percent of capacity added, followed by wind power and hydro, which accounted for 34 and 15.5 percent respectively. Global capacity grew by nearly 9 percent compared to 2015, hitting almost 2,017 GW.

While the investment of $241.6 billion in renewable power and fuels – excluding hydropower projects bigger than 50 megawatts – was a 23 percent reduction compared to 2015, this decline “accompanied a record installation of renewable power capacity worldwide,” REN21 said.

“The world is adding more renewable power capacity each year than it adds in new capacity from all fossil fuels combined,” Arthouros Zervos, REN21’s chair, said in a statement.

Zervos went on to add that as the share of renewables grew, investment in infrastructure would be needed in addition to tools such as integrated transmission and distribution networks; measures to balance supply and demand; sector coupling such as the integration of power and transport networks; and the deployment of “enabling technologies.”

When it comes to the environment, REN21 said that worldwide energy-related CO2 emissions from fossil fuels and industry were stable, despite the global economy growing three percent and greater demand for energy. This, it added, was primarily down to the decline of coal as well as improvements in energy efficiency and the growth of renewable capacity.

“The world is in a race against time. The single most important thing we could do to reduce CO2 emissions quickly and cost-effectively, is phase-out coal and speed up investments in energy efficiency and renewables,” Christine Lins, executive secretary of REN21, said.

“When China announced in January that it was cancelling more than 100 coal plants currently in development, they set an example for governments everywhere: change happens quickly when governments act – by establishing clear, long-term policy and financial signals and incentives.”

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Aussie Snapshot

If you’re wondering how Australia’s overall economy has been faring lately, especially since Australia’s Q1 GDP report will be released next week and the RBA would be giving another rate decision and statement, also next week, then today’s economic snapshot is just for you.

Growth

  • Australia’s Q4 2016 GDP printed a 1.1% quarter-on-quarter expansion, beating forecasts for a 0.7% increase.
  • The rebound means that Australia avoided a technical recession after Q3’s disappointing 0.5% contraction.
  • The 0.9% increase in household spending (+0.4% previous) was the main driver for the recovery, since it added 0.5% to GDP growth (+0.2% previous).
  • Private business investment was also a driver, adding 0.2% to GDP growth (-0.1% previous).
  • This marks the first increase in private business investment after nine consecutive quarters of declines.
  • Government investment became a major driver again after being the main drag in Q3.
  • Government investment increased by 7.7% (-7.8% previous), adding 0.3% to total GDP (-0.4% previous).
  • The 34.2% surge in national defence investment, in turn, was the main driver for total government investment.
  • Net trade was also a driver, adding 0.2% to total GDP, thanks to the 2.2% increase in exports.
  • Trade was a dud back in Q3, since exports and imports cancelled each other out.
  • Year-on-year, Australia’s economy grew by 2.4% in Q4.
  • Also, Q3’s +1.8% annual growth, which was the slowest year-on-year expansion since 2009, was upgraded to +1.9%.
  • The major driver for the faster year-on-year growth was net trade, since it added 1.5% to total GDP growth (+0.7% previous).
  • Household spending was also a major driver, adding 1.5% to annual growth (+1.4% previous).
  • Meanwhile, private business investment was less of a drag, subtracting only 0.8% from GDP growth (-1.4% previous).

Employment

  • Australia’s seasonally-adjusted jobless rate dropped from 5.9% to 5.7% in April.
  • This is the best reading since January 2017.
  • Meanwhile, the labor force participation rate held steady at 64.8%, which is the shared best reading since July 2016.
  • This means that the drop in the jobless rate was due to the number of unemployed blokes and sheilas falling from 751K to 732K.
  • This further means that the drop in the jobless rate is a healthy one.
  • In terms of job growth, the Australian economy generated a net increase of 37.4K jobs.
  • This is a smaller increase compared to the 60.0K increase in March, though.
  • Moreover, the net increase in jobs was due to the 48.96K increase in part-time employment, which was partially offset by the loss of 11.60K full-time jobs.
  • This is the first decrease in full-time jobs after two straight months of solid increases.
  • Still, the Australian economy has been generating jobs for seven months straight, which is something.

Inflation & Wage Growth

  • Headline CPI rose by 0.5% quarter-on-quarter in Q1 2017, matching Q4 2016’s reading.
  • Year-on-year, CPI advanced by 2.1%, accelerating from the previous quarter’s 1.5%.
  • This is the best reading in 10 quarters and also marks the third consecutive quarter of improvements for the annual reading.
  • Moroever, headline CPI is now within the lower bound of the RBA’s target range.
  • For reference, the RBA’s target range for annual headline inflation is 2-3%.
  • Meanwhile, the annual core reading rebounded from 1.6%, a low not seen since 1998, to 1.9%.
  • This is the best reading in five quarters.
  • On a quarter-on-quarter basis, 6 out of the 11 sub-components printed increased while the rest took hits.
  • Year-on-year, only 3 of the 11 sub-components got hit.
  • Interestingly enough, the biggest driver for quarter-on-quarter CPI was the 0.8% increase from the housing component, which added around 0.2% to CPI.
  • And of the housing component, the 2.2% increase in the cost of utilities accounted for 0.11%, the 1.0% rise in the price of new dwellings accounted for about 0.09%, the 0.1% rise in rent added 0.01%, and the rest only had very minimal contribution.
  • The soft rise in rent and higher cost of utilities was anticipated by the RBA, but the higher cost of dwellings was not.
  • Moving on to wage growth, total hourly rates of pay (excluding bonuses) in both the private and public sector increased by 0.5% quarter-on-quarter during Q1 2017.
  • This is a tick faster than the +0.4% reported in Q4 2016.
  • Wage growth has been holding steady at or around +0.5% since Q2 2015 after trending lower from a peak of +1.0 back in Q1 2012.
  • Year-on-year, the wage price index increased only by 1.9%, which is the same pace as in Q4 2016.
  • This is the shared weakest year-on-year increase since comparable records began in Q3 1998.
  • As for trends, wage growth has been steadily slowing since Q3 2012.

Business Conditions & Sentiment

  • The National Australia Bank’s (NAB) business confidence index rebounded from 6 to 13 index points in April.
  • This is the highest reading since 2010.
  • Also, business sentiment has been positive since September 2013.
  • As for NAB’s business conditions index, it climbed even higher from 12 to 14 index points.
  • According to NAB, “employment conditions drove most of the improvement in the month, while profitability was steady. A drop in trading conditions (sales) was only partly offsetting and it remains the strongest component despite the moderation.”
  • In addition, “Solid levels of business conditions have begun to look more uniform across industries, although transport and retail drove most of the improvement in the month of April.”
  • NAB’s labour costs index, meanwhile, finally increased from 0.8% to 1.0%, which is a promising sign for wage growth.
  • Moving on to the Australian Industry Group’s (AIG) performance of services index (PSI), the reading jumped from 51.7 to a three-month high of 53.0.
  • This marks the second month of improving readings.
  • The improvement was broad-based across sub-indices, with the sales sub-index rising by 1.2 points to 55.0 and the new orders sub-index climbing by 2.2 points to 54.5.
  • Unfortunately, the employment sub-index fell by 3.1 points to 51.9.
  • The reading is still above the 50.0 neutral level, though, so payrolls still increased, albeit at a weaker rate.
  • Going to AIG’s performance of manufacturing index (PMI), it recovered to 59.2 after sliding to 57.5 previously.
  • The new orders sub-index shed 1.1 points and dropped to 61.5.
  • However, the production sub-index picked up the pace by jumping 3.1 points to 60.7.
  • Exports also soared by 7.5 points to 58.6.
  • As for business loans, that printed a 0.4% increase in April.
  • Year-on-year, business loans only increased by 3.1%.
  • This is the weakest year-on-year reading since May 2014, as well as marking the fourth straight month of ever poorer readings.

Consumer Spending & Credit

  • Retail trade turnover in Australia fell by 0.1% month-on-month (seasonally-adjusted) in March.
  • This is a softer fall compared to February’s -0.2%.
  • Nevertheless, it still marks the second month of declines.
  • Moreover,retail trade turnover for all of Q1 only increased by 0.27% quarter-on-quarter.
  • In contrast retail trade turnover for Q4 printed a 1.07% increase, so consumer spending very likely took a hit in Q1.
  • Looking at the details, 4 of the 6 major retail store types reported decreases in retail trade turnover.
  • The biggest drag was the 0.5% fall in retail sales from food stores (+0.2% previous), followed by the 0.6% fall (-0.1% previous) in sales reported by cafes, restaurants, and & takeaway food services.
  • Year-on-year retail trade turnover only increased by 2.5%.
  • This is the weakest annual reading in 44 months.
  • In addition, this marks the fifth month of worsening annual readings.
  • As for personal loans, both the monthly and annual readings were in negative territory again in April.
  • Personal credit, on both a monthly and yearly basis, has been falling since January 2016.
  • On a monthly basis, personal credit fell by 0.1% in April, which is a bit softer than the 0.2% fall in March.
  • Year-on-year, personal credit slumped by 1.5%, the same rate of decline as in March.
  • This is the shared biggest year-on-year contraction since April 2012.

Housing

  • After slumping by 10.3% in March, building approvals increased by 4.4% in April, thanks mainly to the 9.6% increase in approvals of private sector dwellings excluding houses.
  • Housing loans to owner-occupiers continue to grow at a steady pace, printing another 0.5% month-on-month increase.
  • Year-on-year, it slowed from +6.2% to +6.1%, which is the lowest reading since September 2015.
  • As for housing loans to investors, they increased by another 0.6% month-on-month in April.
  • On an annual basis, housing loans to investors grew by 7.3%, which is the highest reading since January 2016.
  • Also, housing loans to investors have been steadily picking up the pace after bottoming out at an annual pace of 4.6% back in August 2016.
  • This may mean that speculative pressure on the Australian housing market is still picking up, increasing the chance of a housing bubble.
  • Trend wise, overall housing credit maintained the +6.5% reported in March.
  • Total housing credit bottomed out at 6.3% back in November 2016 and looks like it has been slowly rising since then.
  • As for AIG’s performance of construction index (PCI), it modestly improved from 51.2 to 51.9 in April.
  • Overall construction activity fell, thanks to the drop in housing and commecial building construction being partially offset by the large increase in apartment building construction and engineering works.

Trade

  • Australia seasonally-adjusted trade surplus narrowed to $3,107 million in March.
  • Still, this marks the fifth consecutive month of surpluses.
  • That’s in Aussie dollars, by the way.
  • The smaller surplus was due to imports jumping by 4.6% after contracting by 4.7% previously.
  • This was able to offset the 2.4% increase in exports (+0.1% previous).
  • But on an upbeat note, total exports increased by 5.44% between Q4 2016 and Q1 2017.
  • Imports did increase by 2.44%, though.
  • Even so, the net surplus for all of Q1 is bigger than the surplus back in Q4, so trade was likely a driver in Q1.

Cheerio

The Pinstripe and Bowler Club Shares information with MF Solutions Ltd

Red Flag For Bonds

As of late Monday trading, the 10-year U.S. Treasury note was trading at a yield of 2.25 percent per year, while the two-year note yielded 1.28 percent per year. At 0.97 percentage point, the “spread” between the longer-maturity note and the shorter-maturity one is hovering at the lowest levels seen since October.

This is not only a titillating factoid to discuss with friends, but a sign that bond investors aren’t quite buying the idea that the economy is heating up.

Longer-term bonds generally command greater yields than shorter ones, and the more enthusiastic the expectations for inflation, the greater this difference tends to be. After all, an investor doesn’t want to lock up their money for a decade only to receive a sum that’s worth less in those future dollars. Since faster economic growth is thought to lead to greater inflation, and inflation expectations tend to change the yields for longer-term bonds more dramatically than that of shorter-term bonds, it is easy to see why the yield spread is commonly taken to be an indicator of economic growth expectations.

Right now, is doesn’t appear to be indicating anything good.

“The Treasury market is telling us a very different story about the big pickup in growth that the consensus is looking for in the second half of the year,” Matt Maley, equity strategist at Miller Tabak, wrote in a Monday commentary piece.

As Peter Boockvar of The Lindsey Group sees it, the spread is telling a story about both what traders think the Federal Reserve will do, and how they think the economy is likely to respond to those actions. As he alludes to, short-term bonds tend to be guided closely by expectations of Fed policy, while longer-term yields more purely reflect economic expectations.

When it comes to the falling spread, “It’s becoming clear the reasoning and that is a Fed that is intent on raising short rates due to their statistical employment and inflation hurdles having been met (and thus backward looking viewpoints) and market worries about how the economy will handle that reflected in the drop in long rates,” Boockvar wrote in a Monday note.

Others say the yield spread is not serving up a yield sign — yet.

The short end of the yield curve is “rising on expectations of tighter monetary policy, while the low end is more correlated to growth … so I think the case could be made that the curve continues to narrow,” Oppenheimer technical analyst Ari Wald said on Monday.

Yet this doesn’t worry Wald, who noted that the yield spread turned fully negative before each of the four most recent recessions.

“We don’t think the flatter curve is a warning,” he said. “As long as banks can borrow short[-term debt] and lend long[-term debt], we think the economy can do just fine and the stock market can do just fine.”

“In fact, the level and direction of the yield curve now looks a lot like it did in 1994 and it looks a lot like it did in 2004 — years where you still wanted to be invested in stocks,” Wald added.

Kevin Caron, a portfolio manager at Washington Crossing Advisors, agreed that only an inverted yield curve would be a real warning signal, and pointed out that a spread at this level has been seen “a couple times already in this recovery, and it didn’t indicate anything in the way of a recession.”

However, he granted that the decline in the yield curve is telling us something about investor sentiment.

“The flattening ties into the fading of expectations for some kind of fiscal push this year,” Caron said Monday . “This is the broader representation of a resetting of expectations, in the United States at least, and the expectation for maybe slower growth than what we expected just after the election.”

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

 

Sugar Not So Sweet.

It’s not this year’s price crash that haunts the $150 billion sugar industry. It’s the fear of worse to come.

Raw sugar’s 16 percent drop ranks it bottom of the 22 raw materials on the Bloomberg Commodity Index. Shocks to demand in top consumer India and prospects of more European supply are helping shift the market to a surplus, hurting prices. Yet beyond such market dampeners, hang darker clouds.

After decades of stable demand growth, almost doubling per person since 1960, the world is heading for a tipping point as shoppers turn against the cola and candy blamed for an obesity epidemic in the rich world. At the same time, sugar has to compete with cheap syrups increasingly used in processed food.

Demand is rising by some estimates at the slowest since at least the global financial crisis as companies like Coca-Cola Co., consuming about 14 percent of all sugar traded, and Nestle SA, the world’s biggest food company, react to such trends. Group Sopex and Green Pool Commodity Specialists see growth in 2017-18 below the average 2 percent a year of the past decade or so. The U.S. Department of Agriculture sees the first drop in demand in a quarter century.

“Growth is not what it’s been,” Tom McNeill, managing director of Green Pool, said in an interview. “There is undoubtedly a move by global bottlers and by a lot of global food manufacturers to reduce the sugar content in their products.”

Consumption may sink below 1 percent for a second year in the 2016-2017 season, less than half the average pace in the previous decade, Sopex figures show. The slowdown may mark a turning point for an industry that’s seen near linear growth for half a century on an expanding world population and rising wealth, concentrated most recently in dynamic economies like China.

Indeed, food giants are only just beginning to respond to noisy calls from customers, lobby groups and lawmakers to cut empty carbs from products.

Coca-Cola has 200 reformulations of products in the works to lower sugar content, Chief Executive Officer James Quincey said in October. PepsiCo Inc. has vowed that at least two-thirds of the company’s volume will have no more than 100 calories from added sugars per 12-ounce serving by 2025.

Coca-Cola’s Biggest Challenge Under Next CEO: Cutting Calories

Nestle said late last year it had found a way to reduce sugar in chocolate as much as 40 percent and would lower sugar in the chocolate and confectionery it sells in the U.K. and Ireland by 10 percent. Globally, companies curbed ingredients that raise health concerns such as sugar and salt in about a fifth of their products in 2016, says the Consumer Goods Forum, a retailing lobby.

“We are hearing from right, left and center all the intentions of the industrial users — food and beverage companies — to reformulate their products,” said Sergey Gudoshnikov, senior economist at the International Sugar Organization, representing producing nations. “Sooner or later it will work.”

U.S. cities such as Philadelphia and San Francisco and countries such as France and Mexico have added “sin taxes” previously reserved for tobacco or alcohol to sugary sodas, with others lining up to join them. The World Health Organization says its research shows that a 20 percent increase in the retail price of fizzy drinks results in a proportional drop in demand.

The industry is now having to adapt to what some have dubbed a war on sugar.

Cutting sugar alone won’t solve obesity concerns, according to Courtney Gaine, president and CEO of the Sugar Association, a Washington-based lobby group. Replacing sugar with starches or fat doesn’t reduce total calories, she said.

Blame Game

“It’s very important that the sugar industry preaches moderation and doesn’t say, ‘Hey, it’s not our problem’ because it’s the whole food and beverage industry’s problem to try and help the world be a healthier place,” Gaine said. “I would like for sugar not to be blamed as the sole cause, but we are also not innocent.”

Beyond the developed world, consumption of sugar isn’t going to fall off a cliff as long as the world’s population is still expanding and there are burgeoning middle classes in Asian and African cities, according to Rabobank International.

Trends in richer countries with more money to spend are significant, nevertheless. Demand is set to sink in Germany, France and the U.K., according to Tropical Research Services data for the season that starts in October.

Some middle-income nations are also hurting from weak economies. Brazilian demand has dropped by about 1 million metric tons over the past three to four seasons, according to Sopex. It’s also down in Argentina.

More significantly, sugar is losing out to cheaper sweeteners as food manufacturers protect profit margins. Soda makers in China and the Philippines are using more high-fructose corn syrup. The processed sweetener, made from corn starch, is about 3,680 yuan ($534) a ton cheaper than sugar, Sopex says.

“That’s seriously eroding demand,” said John Stansfield, an analyst at Sopex who has worked in the sugar industry for two decades.

High-fructose corn syrup displaced 3.3 million tons of sugar in China alone in 2016, according to the USDA.

The drop in raw-sugar futures prices this year in New York to 16.26 cents a pound can mostly be blamed on short-term problems such as the weak Brazilian economy and currency policies in India that disrupted demand.

But beyond such squalls, others hear distant thunder.

“Some of the changes are temporary, others are not,” said Sean Diffley, head of sugar and ethanol research at TRS, which advises hedge funds. “I suspect the food and beverage industry doesn’t go back to larger bars of chocolate or full-sugar Coca-Cola.”

Cheerio

The Pinstripe and Bowler Cub shares information with MF Solutions Ltd.