Sugar Market Report

Firstly, a very Happy and, above all, Healthy 2021 to all.

The sugar market has seen a very positive start to the New Year. Before Christmas the market was languishing below 15 cents trading in unprecedented low volumes. Christmas eve saw prices hit 15 cents and since then prices have rallied over 130 points on the back of heavy fund buying to hit their highest levels since May 2017. However, yesterday saw a sharp pull-back with the market falling nearly 80 points at one point during the day after posting a double top at 16.32/33.

The main driver for the rally seen in sugar has been fund buying which has been seen across most agricultural commodities. The frenzy of fund buying has seen them increase their long positions to new records levels across commodities. The weakness of the USD has helped but, it seems as if there is a growing view, as mentioned before, that a new bull cycle in commodities has started. Of course, the funds are very good at triggering these cycles and it remains to be seen whether they are just self-perpetuating this view. It is true that raw food prices have increased recently. In December world food prices rose for the 7th consecutive month according to the United Nations food agency hitting a three year high and further gains are anticipated. Traders are looking to 2011 when average food prices were at historic highs and some 25% above current levels.

The move above 16 cents in sugar has been good news for Indian exporters. Armed with their Government’s export subsidy they have taken advantage and sold around 1.5 million tonnes of, mainly, raw sugar recently. This is helping to cut stocks and improve internal prices which had been falling despite world prices rising. Further sales are likely over the coming few months with exporters mindful that competition will appear from Brazil once their next harvest starts. However, with sugar production likely to be 32-33 million tonnes this season and internal consumption no better than 26 million tonnes they will still finish the season with the same or slightly more stocks than they started. Indian exports are replacing Thai as their harvest gets off to a very slow start. Hit by drought their output is not expected to improve from last season’s disappointing total. However, recent rains have been beneficial and the slow start by many of the mills maybe to allow the cane more time to improve.

Many analysts have been fairly optimistic with the consumption levels of sugar for 2021 after the drop last year caused by the global pandemic lock-downs. However, it is likely some revisions may have to be made with large parts of the world going back into lock-down again. The vaccine roll-out will take time so any significant changes to the situation appear likely to take time. While some trade houses see a production deficit for this season of around 5 million tonnes other are more cautious seeing a more balanced situation. Much will depend on Brazilian production next season. It is highly unlikely production will reach the record levels of 2020/21 but much will depend on ethanol prices and the BRL.

Regardless of fundamentals the funds have the view that food commodities are bullish and they are unlikely to change this view for the time being. Therefore, there would appear little reason for sugar prices to collapse. Whether there is much reason for them to rally considerably higher is debateable.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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