Sugar Market Report

Good morning,

The market took a breather on Friday, following the near 90 point rally the previous session, as prices dropped back. Nevertheless, it was an impressive weekly performance with gains of nearly 6%. The market had opened unchanged tried to improve but once it became apparent that there was no follow-through buying the market started to ease on some speculative liquidation. Prices did try to improve mid-morning but the buying soon dried up and a more pronounced drop was seen down to the lows of the day by early afternoon and nearly 50 points off the previous day’s highs. The market then remained within a 20 point range for the rest of the session settling not far the middle of the day’s range. Unsurprisingly, the HK slipped 8 points on some profit taking to settle at +87 while the KN dropped 7 points to end at +59. In London the drop was not so pronounced although the structure weakened a little with the HK ending down at +16.50 and the KQ at +15.70. However, the WP ended firmer with the HH at 99.00 while the KK jumped to 101.70 the first time in a while the WP has seen triple figures. It was somewhat inevitable that prices would drop back after the jump in prices the previous session with fund buying, that had driven the rally over the past week, more subdued. The macro was weaker on Friday which also weighed on the market.

The COT as of the 12^th Jan showed that the funds/specs had cut their net long position by 12,937 to 234,446. The non-commercials cut their net longs by 17,239 to 165,741 which was, probably, more than expected although prices during the reporting period had dropped nearly 70 points. However, over the past three session the market has rallied nearly 130 points mainly on the back of some aggressive fund buying in good volume so it is conceivable the funds now just over 200k net long. The commercials cut their net shorts by 17,534 to 506,259 with end-users taking advantage of the drop to price. The Index funds cut their net long position by 4,598 to 271,814.

Analysts and traders are continuing to try to justify the big move last week with most finding no particular reason, from a fundamental basis. However, all agree that the fund buying seen across the majority of agricultural contracts including sugar was the overriding factor with a lack of selling in the front month in sugar a factor for the scale of the gains. Citibank said in a note that the strength could persist in the front month they do not see current levels persisting in the medium term. Of course, the funds will have to start to roll their longs forward before too long which could put the front spread under pressure which might translate into a drop in the overall flat price.

This morning the NY market is closed for Martin Luther King day. London is open but has an early close at 17:00 London time. In early trading London is slightly weaker, but in virtually non-existent trading volume. The HK is unchanged at +16.50 while the KQ is slightly weaker valued at +15.30. It is likely to be a quiet session in London with NY closed. The macro is quiet and slightly negative this morning.

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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