Sugar Market Report for 2 February

Good morning,

The market recovered some of the losses seen the previous eight session yesterday as profit taking appeared on a more positive macro picture. The market had opened 7 points firmer before falling back the register the lows of the day about an hour after the opening. However, prices soon started to improve as the structure also strengthened. Much of the morning the market held in a 6 point range either side of unchanged before improving as US traders got to their desks to hit the highs mid-afternoon. The market then remained range-bound for the rest of the session settling nearly 60 points off the lows hit the previous session. The HK improved again to settle 3 points better at +45 while the KN was 6 points firmer at +26. The front month strength is probably helped by the strength of the flat price but also may indicate manoeuvring in front of the H-22 expiry with a view that deliverable physical sugar maybe tight. The KN is also strengthening possibly on the view that the next Brazilian CS harvest is likely to be delayed.

The director of Canaplan, Luiz Carlos Correa Carvalho, said in an interview that the next CS harvest should be delayed to allow cane to recover from the drought and fires which impacted the cane over the past two years. The late start to the harvest will bring its own risks. Carvalho sees two scenarios for the 2022/23 harvest. Firstly, the rains continue through to April/May which leads to agricultural productivity gains of up to 10% which might push the average per hectare to close to 74 tonnes per hectare compared with 67 tonnes in 2021/22 and 78 tonnes in 2020/2021. The second scenario is that the rains stop in February and this might mean yields drop to around 71 tonnes per hectare. Time will tell but it does emphasis the importance of the weather across the CS over the coming months. Brazil exported 1.363 million tonnes of sugar during January which is over 30% lower compared with the 2.002 million tonnes exported in January 2021. This lower figure is not too surprising given the overall lower production last season.

India stocks could drop to 6.5-7 million tonnes by the end of the current season which would be the second lowest level in 10 years according to trade sources. Earlier in the month the All India Sugar Trade Association said they see closing stocks at the end of 2021/22 at 7.2 million tonnes with consumption at 27 million tonnes up from 26.5 million tonnes last year.

This morning the market opened a couple of points firmer in thin trading volume. Currently, the market is 2 points lower with continuing thin volume. The HK is a couple of points lower at +43 while the KN is 1 point weaker at +25. In early London trading both the HK and KQ are a tad firmer at +11.60 and +7.60. The macro is mixed this morning with crude a tad lower while grains are lower and soya higher. The USD Index is lower again continuing to fall back from the multi-month highs hit last week when geopolitical concerns were at their highest. There does seem a growing view that the Russian/Ukraine concerns will not escalate further for the time being. The sugar market could improve a little more on short covering but is more likely to try to build a base and consolidate around 18.50 assuming the macro quietens. The strength of the structure in both markets will also add support to the flat price.