Sugar Market Report

Good morning,

Friday saw the market settle at its highest level since the end of February on continuing fund buying against only limited scale up producer selling. However, the trading volume remained disappointing at just over 80k lots. The market had opened 2-3 points firmer before quickly improving another 10-12 points on some light speculative market on opening buying. Prices improved further during late morning hitting 14.40 just after mid-day. The market then settled into a narrow 12 point range for all but the last 15 minutes of trading when a bout of late fund buying saw prices settle above 14.40 and at the highs of the day. The stand out feature of the day was the continuing strengthening of the front two spreads. The HK improved back to the highs seen the previous session ending up 11 points at +63 while the KN also finished 9 points firmer at +53. It would appear the delay and uncertainty over India’s export policy/subsidies is getting traders nervous. Limited Indian exports early next year could see raw supply tightness until the Brazilian CS harvest kicks in. In London there was a more measured tightening of the structure with the ZH moving back to premium ending at +1.30. The HK also improved $1.50 to +3.50. This saw the ZH WP improve over $2 to finish at around 77.90 and the HH WP ended the week at 76.60 – still rather underwhelming levels. The market continues to strengthen not so much on bullish fundamental news but uncertainty that the India government might change their export subsidy regime meaning that while the country may produce in excess of 32 million tonnes they may not be able to export unless prices improve significantly. Time will tell but, while the market awaits any government proclamations, the funds seem to be taking full advantage of commercial traders uncertainty.

The COT report as of the 13^th October showed the funds/Specs had, once again, increased their net long position by 17,006 to 244,002. The more important non-commercials increased their net long position by 20,598 to 193,823 and, therefore, are probably, now just over 200k lots net long. This is now a fairly sizable position given the Open Interest and limited daily trading volumes. However, as mentioned before, the funds are net long of most agri-commodities at the moment suggesting they see better returns than other asset classes at the moment. The commercials increased their net shorts by 29,014 to 506,167 when, for the first time in several weeks, there was good producer pricing noted. If prices push higher this is likely to continue. The Index funds increased their net longs by 4,825 to 262,165 during the period.

This morning the market opened 4 points firmer before improving to just shy of the recent high of 14.55, before slipping back. Current prices are around 4 points weaker. The HK and KN are around unchanged at +63 and +53 respectively. Trading volumes have been limited so far. In London it is a quiet opening with ZH and HK around unchanged at +1.20 and +3.50. This morning the macro is, essentially, unchanged. The USD is slightly weaker as it corrects from its improvement early last week. It continues to rain across the CS of Brazil and the 10 day forecast sees continuing episodes of rain. While this is certainly helping next year’s cane it will hamper the current harvest and is not being seen as particularly bearish at the moment. While the funds remain as buyers there would little reason why prices will not improve further and break above the recent high of 14.55. Producer selling noted very much on a scale up basis with many traders side-lined as they await new from India. The down-side continues to look limited with last Monday’s sharp sell-off not a distant memory with prices back at the highs of that day.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg

Phone: +44(0) 207 716 8598

Email: admisi.sugar@admisi.com

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