Sugar Market Report for 3 February

Good morning,

The market collapsed yesterday as it failed to build on the previous session gains in early trading which saw technical selling into a void of buying. The market had opened 2 points firmer but immediately started to fall losing over 20 points in the first hour of trading. Prices then slowly improved getting back to just shy of opening levels by the time US traders got to their desks. However, mid-afternoon saw prices plunge nearly 40 points in the space of 30 minutes on news of lower ethanol sales in Brazil and a general negative macro picture. The market remained very weak going into the close with the lows of the day hit during the post-settlement period. It was a poor performance with the structure weakening as well. The HK gave back all the gains seen over the past week ending 13 points weaker at +32. The KN was equally as weak losing 11 points to settle back at +15. In London the HK slipped over $2 to end at +9.30 while the KQ also weaker ending at +6.50. However, the WP held with modest gains seen but interest was limited. The HH WP finished at 93.90 and the KK WP at 91.70. Yesterday’s swift reversal after the gains of the previous session was brutal and will have taken many by surprise which may have exacerbated the move. A double bottom was put in place at 17.85/86 but few will view this as a support level at the moment.

According to ISMA, as of the 31^st January, Indian sugar mills had produced 18.7 million tonnes of sugar which is over 5.5% more than the same time last season which was just over 10 million tonnes. A total of 507 mills are operating compared with 491 mills this time last year. Production levels now suggest that total sugar production could be as high as 32.5 million tonnes.

Bi-weekly data from Unica showed ethanol sales falling nearly 30% during the first half of January which surprised the market as crude prices remain high. If the weak demand continues then mills will prioritise sugar production when the new season starts in April. However, with crude prices hitting new highs demand for ethanol may build over the next couple of months. It continues to rain across the CS with more rain forecast for the next 10 days. Mills will be hoping the rains continue for the next couple of months allowing the cane to further recover from the drought conditions seen across much of 2020 and 2021.

This morning the market opened unchanged before improving slightly. Currently, prices are 7-8 points firmer. The HK is 1 point firmer at +33 while the KN is 2 points weaker at +13. In early London trading the HK is slightly firmer at +10.00 while the KQ is unchanged at +6.50. This morning the macro is slightly negative with crude slightly lower while grains/soya are lower with the USD Index firmer. Sugar is being blitzed with negative fundamental news at the moment and prices have suffered. However, the funds have reduced their net long position considerably so the selling pressure seen in early January is now not a great. Nevertheless, prices may drop further and could test the lows reached on the 10^th January at 17.60. There would seem little justification for prices to drop below 17.50 at the moment as there are still questions over how much the Brazilian CS cane has recovered.