Sugar Market Report for 7 February

Good morning,

The market saw a recovery on Friday pulling off the recent lows but the flat prices still remains weak. However, the spot month gained against the rest of the board with the HK improving 15 points to end at +44. The market had opened a couple of points firmer but immediately started to improve further gaining 30 points over the next couple of hours as the front spread also started to strengthen further. This turned out to be the highs of the day as some light long liquidation brought prices back to opening levels by early afternoon. The market then improved again to end near the top end of the day’s range although prices did slip 5 points during the post settlement period. As mentioned to HK ended at +44. The KN was also 5 points firmer ending at +20. In London the structure also strengthened with the HK ending $1 firmer at +10.50 while the KQ finished $2.60 firmer at +8.80. This meant the WP was also firmer with HH WP at 96.60 and the KK WP at 95.80. With the structure improving it was not surprising the flat prices pulled off the lows reached the previous session. It would seem for the time being the lows for the move maybe in place with support growing below 17.90. The macro was also a more positive picture with the USD dropping as the geopolitical picture settled into uneasy standoff.

The COT report as of the 1^st February saw the funds/specs cut their net long position by 20,649 to 62,412 during a period when the flat prices dropped from 18.78 to 17.90 before improving to 18.48. The non-commercials cut their net long position by 23,052 to 37,195 their smallest net long position since June 2020. However, much of the net cut was due to fresh selling which saw the gross short position increase by over 20k lots. This possibly suggests that the gross longs are unlikely to cut further and the new shorts maybe vulnerable to being covered if prices rally up above 18.50. The commercials cut their net shorts by 26,983 to 232,194. The stand out feature was the good pricing by end destination who continue to take advantage of the low prices to price physical purchases. The Index funds cut their net longs by 6,333 to 169,783 with general liquidation as the H22 expiry nears.

This morning the market opened 7 points weaker but soon improved. Currently, the market is around 5 points firmer. The HK is down 2 points at +42 while the KN is also 2 points lower at +18. In early London trading the HK is firmer at +11.00 while the KQ is unchanged at +8.80. The macro is mixed this morning with crude lower while grains/soya are firmer. The USD index is slightly firmer but still well down on this time last week. London H-22 expires on Friday. The OI as of COB Thursday was 19,165 a drop of only 968 lots so the delivery maybe relatively large or the shorts will need to cover which could keep the spot month and spread firm. Overall the markets look well supported at these levels especially with the structure firming. However, it would seem unlikely a major rally will develop with production increasing in the likes of India and Thailand.