Sugar Market Report for 18 May

The market dropped again yesterday recording its lowest settlement since 4th May although there was no significant break on the downside. The market had opened 7 points firmer but soon started to slip lower. The weakening continued throughout the morning culminating in hitting the day’s lows just as US traders got to their desks. At this point, prices improved on some light short covering but the bounce was minimal with values soon falling back with the market settling lower and below 26 cents. The trading volume continues to deteriorate with just under 77k lots yesterday. Given the relatively narrow range over the past 8 session this is hardly surprising. The NV slipped 2 points to +32 as was the VH at +42. In London the structure remained firm with the QV ending slightly higher at +11.40 and the VZ virtually unchanged at +11.20. The WP did slip a little with the VV WP ending at 136.10 and the VZ at 124.90. The macro was, probably, the main reason for the drop again yesterday as most agricultural markets ended lower. Indeed many would argue that sugar has maintained its strength remarkably well given the drop in other commodities over the past few days and does point to the market’s undeniable bullish fundamental picture.

Limited fresh news around. Traders now await further Brazilian CS harvest data which should show a significant improvement in the crush and production over the past couple of weeks. The next concern will be how the Indian monsoon develops which officially starts at the beginning of June. The four consecutive good monsoons and the development of El Nino mean that many traders believe (hope?) that the upcoming monsoon maybe have lower rainfall. Of course, the distribution of the rains is as important as the amount and a considered picture will not develop until well into July. Then the Thai monsoon will start in July which will also be watched carefully. Weather across Europe will also be important in the development of the beet which is already being planted late in many areas. However, this is due to wet weather so once in the ground should develop well.

The recently announced change in Brazilian fuel policy is likely to widen the gap between ethanol and sugar which is already large. However, mills are producing as much sugar as possible so will not have any marked impact on the amount eventually produced. Czarnikow have calculated that the gap between sugar and hydrous ethanol is equivalent to 11.34 cents the widest since 2011.

This morning the market opened 3 points lower before slipping further and then recovering. Currently, the market is trading 3-4 points lower.

The NV and VH are both unchanged at +32 and +42 respectively. In early London trading the QV and VZ are also unchanged at +112.40 and +11.20 respectively. The macro is a negative picture again with most commodities trending lower while the USD Index is around its highest level since March. The BRL ended at 5.93 yesterday. It is Ascension day with many European countries on holiday so this may mean the markets remain quiet, especially given the limited interest yesterday. Prices may slip further but any wholesale sell off would seem unlikely. Indeed prices could quickly recover as there is likely to be limited selling above the market while good scale down buying is noted from current levels. Of course, there is a chance the funds may decide to liquidate their long held positions given the market’s inability to break higher over the past three weeks. They may be sitting on a large profit but if they feel the market’s up-side is limited they may exit to look for somewhere more profitable to invest.