Sugar Squeeze

Nestled close against the broad steel beams of the Second Avenue Elevated at Pearl Street, is the dingy Victorian building of the New York Coffee & Sugar Exchange. There one-fourth of all the world's sugar changes hands and there, last week, a frantic little group of sugar traders had been caught short. To cover contracts of 25,000 tons for December delivery, the shorts could not find a bagful more than 8,000 tons. The tightest sugar squeeze in 20 years of trading had sent Exchange managers into daily meetings lasting long after dark. Reluctantly they had suspended all further trading in December futures.

Yet, as all the world knows, there is plenty of sugar. In fact on Aug. 31 there was a world surplus of 9,673,000 long tons. That very surplus, coupled with President Roosevelt's desire to help Cuban producers and to protect loud-squawking U. S. beet growers, had led the AAA to fix quotas on sugar shipments into the U. S. under the Jones-Costigan Act (TIME, April 30). To the quotas which Secretary Wallace fixed, last week's squeeze was largely due.

Philippine sugar producers filled their 1934 quota early last summer. The Puerto Rican and Hawaiian quotas were completed in November. But Cuba, noted in the trade as a patient holder, still had several hundred thousand tons of its quota left as late as September. The Cubans had begun to foresee that as soon as the quotas of other producers were exhausted, they would be in control of the U. S. raw sugar market until the 1935 quotas came into effect Jan. 1. Accordingly, in early October, they signed a three-month agreement with U. S. refiners. The agreement: 1) Cuban producers would sell 130,000 long tons of raw sugar to the refiners at 2.18 1/2-c- per Ib. and as much more at the same price as the refiners wanted; 2) Cuban producers would not sell any sugar for delivery during the rest of the year to anyone but refiners at any price. To refiners this agreement assured a year-end supply even though the price was high. To short traders, a bargain which cornered Cuban sugar for the rest of the year did not seem ominous at the time. There was still enough other sugar available in warehouses for them to buy up at leisure.

From their leisure the shorts were rudely jarred last month. It developed that the holders of warehouse stock had been liquidating it each time the market rose. Result was that instead of 30,000 or 40,000 tons which shorts had counted on buying to cover their year-end commitments, there was only a meagre 8,000 tons. They had waited too long.

At this point the Cuban agreement pinched and pinched hard. Quotas and agreements had closed every source of sugar--Cuba, the refiners, the vast world surpluses accumulated from other years. There was nothing the shorts could do-- except appeal to Washington.

Down to Washington, according to Wall Street gossip, sped Charles Hayden of Hayden, Stone & Co. His firm and the sugar house of B. W. Dyer & Co. were reputed to be the two biggest shorts caught in the squeeze. In vain did he argue with AAA officials that the Cuban agreement made it impossible for shorts to get their hands on sugar they had lined up in Cuba. To this the longs could reply that since many December contracts had been made months prior to the Cuban agreement, the shorts had had ample time to cover themselves. Last week AAA announced that it had no sympathy with either the longs or the shorts, would stay out of the fight.

Last week therefore the Sugar Exchange appointed a committee of five before which longs and shorts could appear voluntarily with plans to liquidate the December contracts--a procedure certain to be expensive to the shorts. Four days were allowed for settlement. After that the Exchange rules provide for liquidation of contracts which cannot otherwise be settled at 25 points above the spot price on the day of delivery. The last spot quotation was reported to be 2.08-c- a Ib. which would make the settlement price 2.33-c- a Ib., or $466,000 for each 10,000 short ton contract.

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