Weekly Sugar Wrap for 10 December 2021

The word Omicron has passed into the vernacular over the past fortnight. The Omicron covid variant has dominated the news and caused nearly all markets to plunge on concerns that this new variant is the most transmissible and virulent to date. Unsurprisingly, sugar was caught up in the turmoil collapsing nearly 150 points in a week. However, the market has recovered as quickly as it collapsed with prices now back to near where they were when Omicron was just a letter in the Greek alphabet. During this period fundamental news has taken a back-seat in proceedings although, to be honest, it has been fairly scant in terms of fresh news.

While it is early days the Omicron variant may not be the game changer many feared and the plunge in markets was purely on uncertainty. While this variant appears to be highly contagious symptoms appear to be no worse than other variants and may, in fact, be slightly less which in the long term maybe beneficial. More research and data will, undoubtably emerge over the coming weeks, but many countries have taken precautionary measures imposing more restrictions. Some would argue additional restrictions were always likely as winter starts across the Northern Hemisphere even without the emergence of Omicron. If Omicron is a less severe variant of Covid and because of its highly transmissible nature it because the dominant variant then it could speed up the herd immunity in countries without dire mortality rates.

The dive in sugar prices was mainly because the funds sold across the commodity spectrum as they took a risk off attitude. The main benefactor of this sell-off was the end destination buyers who had been holding off pricing in the hope of lower prices. They gratefully took the opportunity to price not only in the spot month but well down the board. Whether they did enough remains to be seen – especially as prices have subsequently recovered. It probably means that the pressure is off for the moment as they were getting behind with their pricing compared with producers.

The Brazilian CS harvest is, essentially, done and dusted for another season with a total of just over 32 million tonnes of sugar produced some 6 million tonnes down on the record production of 2020/21. The Indian harvest is continuing apace. By the end of November Indian mills had produced 4.72 million tonnes of sugar which is nearly 10% higher than same period last season. While ISMA continue to maintain more cane will be used for ethanol production than estimated before the harvest started it does seem possible that the 31 million tonnes of production pencilled in by most analysts maybe bettered. So far mills have contracted to export 3.5 million tonnes of sugar during the current season. They do have the stocks to sell more but prices, currently, are below their sell levels. Any increase in the projected production will add to these stocks. The harvest in Thailand has just started and analysts will be keen to see early data which may indicate whether production will exceed 10 million tonnes which is the general market consensus or fall short. One way or the other Thai and Indian millers will now be in competition for business.

The shadow of La Nina continues to hang over Brazil and occupy analysts thoughts. US forecasters recently confirmed that La Nina will persist through the Northern Hemisphere winter with the weather only reverting to neutral conditions during the second quarter of next year. The fear is that La Nina will cause dry weather across Brazil’s CS which could impact on the already compromised cane crop after months of dry weather in 2020/21. Currently, the soil moisture levels have recovered after rains returned back in late August. While they are adequate at the moment rainfall needs to continue through to shortly before the start of the next harvest in April. The short term forecast sees further rain episodes over the next week.

As the end of the year rapidly approaches brokers and analysts gaze into their crystal balls and predict the prices to be seen during the coming year. Rabobank are optimistic that sugar prices will average 20.80 cents in the third quarter of next year. StoneX are not so confident but have the advantage of assessing the situation after the emerge of Omicron while Rabobank was pre-Omicron. StoneX expect prices to remain within a narrow 18-20 cent range during 2022 with Indian selling above 20 cents and Brazilian ethanol parity below 18 cents. They also cite increasing production in India, Thailand and EU and less urgent demand. While it is highly unlikely prices will confine themselves to a two cent range over the course of the next twelve months perhaps the average price for the year will be within this range.

The market has now recovered back to the levels seen before Omicron and will probably continue to consolidate with support around 19.50 and resistance at 20.00 cents. Direction will continue to be dictated by the macro with all markets remaining nervous. Much can happen during the run up to the end of year festivities. The trading volumes are likely to become thinner which could increase volatility. Many will be pleased to see the back of 2021 and look towards 2022 with cautious optimism.