Sugar Market Report for 28 June

The market continued to collapse yesterday dropping to its lowest level since early April on increasing supplies from Brazil and stuttering demand. The market had opened unchanged but soon started to slide again losing 40 points in the first 20 minutes of the session. The selling then slowed with good initial support seen at 23.10. However, in front of the release of the Unica report prices broke 23 cents dropping to the lows of the day. Once the report was released prices bounced 50 points off the lows but the improvement was short lived with prices soon dropping back to settle just below 23 cents although prices did improve another 10 points during the post-settlement period. The NV slipped 1 point to +5 while the VH dropped 3 points to a 1 point discount. In London the structure remains weak with the QV at -2.90 and the VZ at -1.60. The WP dropped with the VV WP ending at 123.50 and the VZ at 125.10. The market has now fallen over 300 points in just a week mainly on a change in sentiment more than any significant change in the fundamental picture. Brazilian sugar production is good and the Indian monsoon is progressing well. These two factors bode well for the two largest sugar producers.

The Unica data released yesterday was, basically, in line with expectations. During the first half of June, mills crushed a total of 40.3 million tonnes of cane producing 2.55 million tonnes of sugar with a 48.95/51.05 sugar/ethanol split. It was estimated about 3 days were lost to rain. This brings the cumulative sugar production for the season to 9.53 million tonnes some 32% higher year-on-year. The second half of June total is likely to top 3 million tonnes given the dry weather prevailing at the moment.

The Indian monsoon is set to cover the whole country by the weekend according to the IMD. While rainfall has been below average so far for June it is expected to pick up in July. It appears El Nino is having limited impact so far but it still remains early days.

This morning the market opened 20 points higher but soon dropped back. Currently, the market has dropped back into the negative column at 4 points lower. The NV is 3 points lower at +2. The OI in N-23 dropped to 41,839 lots with another 27,789 lots traded yesterday. It looks as if the total delivery will be around 500k tonnes but will depend on the spreads over the next three days. The VH is 1 point weaker at -2. In early London trading the QV is weaker at -3.40 and the VZ at -2.10. This morning the macro is mixed with crude slightly higher while grains/soya are lower apart from Bean Oil. The USD index is slightly firmer while the BRL ended weaker at 4.80 yesterday. The market is, probably, due a correction but picking bottoms of markets is exceptionally risky. The funds have, undoubtedly, liquidated a large percentage of their longs but likely to have more to do. End users will have taken full advantage of the drop to price. Therefore, the market could weaken more but the decline may be limited. However, any correction could see a steep improvement with limited selling above the market.