(Bloomberg) -- So much for sugar demand being insulated from the pandemic. A gauge that tracks returns for that market plus cotton and coffee -- the so-called soft commodities -- is on pace for its worst quarter since 1986.
The collapse in oil is dragging down other commodities as the coronavirus saps the outlook for global economies. A lower crude price makes it cheaper to produce synthetic fibers that rival cotton. Lower energy prices are also curbing the outlook for cane-based ethanol, encouraging mills to produce sugar instead of biofuel.
Sugar futures in New York are down 20% so far this year, and cotton tumbled 28%. The Bloomberg Commodities Softs Total Return Subindex has plunged more than 16%.
Weakness in the Brazilian real is also hurting the softs markets. The South American country is the top exporter for sugar and coffee and a key cotton supplier. The currency declines are boosting the outlook for more exports.
“Everybody is at their wit’s end, regardless of the market they are in,” said Arnaldo Correa, partner for Archer Consulting in Sao Paulo. “The decision-making process has gotten more complex, more ingenious, more stressful, and it is often coupled with a thick cloud of variables. Any of the 12 labors of Hercules seems way easier when we come up against the current scenario.”
Coffee is a little bit of an outlier though. There are fears that labor and logistical interruptions will curb the flow of coffee beans. That’s helped the market to climb more than 6% in March, after a 8.5% increase in February. But those advances weren’t enough to make up for a 21% tumble in January -- the commodity is on pace for a first-quarter loss.
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