Sugar Market Report for 26 October

Good morning,

The market saw a seventh consecutive new low yesterday despite Unica harvest data being slightly below expectations. The market had opened 3-4 points higher on a better crude quote but soon slipped back to the previous day’s lows where some limited support was seen. The market then remained within a narrow 10 point range until US traders got to their desks when prices slipped lower to hit the lows of the day and their lowest level since 5th October. Prices did recover back to the highs of the day after Unica but it was more short covering with little sign of any fresh buying. Prices sagged again into the close at their lowest level in thirteen sessions. However, despite the flat price weakness, the structure remained firm with the HK ending unchanged at +93 while the KN improved by 5 points to finish at +50. In London, the ZH improved marginally to end at +31.70 while the HK was virtually unchanged at +8.30. However, the WP slipped again with the ZH ending $1.50 weaker at 125.00 and the HH WP $2 lower at 93.30. While the Unica data was lower than anticipated it was not markedly different and not enough to frighten the bears. The trading volume remains poor with just over 73k lots in total.

Unica released their harvest data for the 1st half of October yesterday afternoon. It showed that a total of 27.7 million tonnes of cane was crushed during the period producing 1.83 million tonnes of sugar with a 48.27/51.73 split. While the actual crush and production were less than predicted by the S&P survey it was considerably higher year-on-year with the crush up 40.5% and sugar production a large 59.10% higher. However, this time last year the cane was severely impacted by the drought and frosts. Cumulative totals are now at 458.7 million tonnes of cane and 28.16 million tonnes of sugar. There is still a lag of just over 2 million tonnes in the sugar total compared with last season but most expect this difference to narrow and should exceed the 32 million tonnes by the time the harvest finishes in December/early January. Much will depend on the weather but, assuming the split remains around 48% to sugar there is a fair chance last season’s total will be bettered.

The Brazilian analyst, Datagro, reported yesterday that they see total CS sugar production reaching 33.25 million tonnes this season with the total cane crush at 542 million tonnes. They went on to predict that there would be a global production surplus of 1.87 million tonnes in the current 2022/23 season. Looking further forward to the prospects for the Brazilian CS 2023/24 season they estimate total sugar production between 36 and 38.5 million tonnes. This would be close to record production if 38.5 million tonnes was achieved. Datagro did preface this production figure by saying much would depend on fuel prices and economic growth. While their global surplus figure is below other analysts their potential CS production figure is high with most other analysts at around 36 million tonnes. At the same conference, Cofco also predicted that next season’s CS cane crop could be between 575 and 595 million tonnes as the cane fields continue to recover from the disastrous drought that hit during the 2021/22 season.

This morning the market opened 1 point lower. Currently, prices are 3 points lower in quiet trading. The HK and KN are both 1 point lower at +92 and +49 respectively. In early London trading, the ZH and HK are both a tad firmer at +32.00 and +8.60 respectively. The macro is mixed this morning with crude lower, metals recovering while grains/soya are mixed. The USD Index has taken another tumble and is now back to the lows seen earlier this month. However, that has not helped the BRL which remains weak at 5.31 in front of this Sunday’s Presidential election. There seems little bullish news around for sugar at the moment. Brazil’s production looks likely to exceed last year’s total and everything is pointing to much higher production next season A global surplus now seems a certainty with concerns over demand adding to the mix. Assuming the Indian Government allows 5 million tonnes or more in their first tranche of exports it will be another reason why any significant recovery in prices may not be seen for the time being. However, there is still much uncertainty around the world and the macro will, undoubtably, continue to play a part in price direction. Secondly, short term the market remains in contango suggesting nearby physical tightness may continue into next year. Finally, seasonality-wise sugar prices often improve through to the end of the year.