Sugar Market Report for 1 August

The market staged a slight recovery yesterday after 5 down sessions. However, the trading volume remains very limited. The market had opened 3 points firmer before swiftly improving another 10 points. Having broken back above 24 cents further buying appeared taking the market another 10 points higher before the buying fizzled out. This prompted some light liquidation with prices soon back to unchanged. As US traders got to their desk prices dropped again to hit the lows of the day but soon recovered with the market improving back to the highs mid-afternoon before retreating again. However, some markets on close fresh buying saw prices jump nearly 20 points in the 5 minute settlement period – possibly some end of month inspired buying. The VH improved 4 points to -18 while the HK also improved 4 points to finish at +137. In London, the structure remains firm with VZ up $1.30 at +10.30 while the ZH ended around unchanged at +10.50. The WP also continues to remain very firm with VV WP finishing at 151.80 and the VZ WP at 141.50. Traders still seem unsure of direction at the moment. The weather across Asia has, so far, been more benign than some had feared given the emergence of El Nino. This has lead some analysts to suggest prices could drop further. Rabobank has reported they see prices dropping from current levels if weather is ‘more or less normal because there are signs demand is tailing off’.

The main weather event at the moment, of course, is the Indian monsoon. The director-general of the Indian Meteorological Department reported yesterday that while the country received above-average rainfall in July it could receive lower rainfall in August due to El Nino. Between the 1^st June and 31^st July rains were 5% above average. However, somewhat confusingly, they also said India could receive between 94% and 106% of normal rainfall in August and September. Needless to say the distribution of the rain will be paramount but it does seem the majority of sugar regions have received adequate rains so far during the current monsoon. It will be important the rains continue through to the end of the monsoon in September.

This morning the market opened unchanged before improving. Currently, the market is 18 points firmer. The VH and HK are both 1 point firmer at -17 and +138 respectively. In early London trading the VZ is a tad weaker at +10.00 while the ZH is higher at +11.10. This morning the macro is fairly neutral with crude slightly lower while grains/soya are a tad firmer. The USD Index is firmer while the BRL was unchanged last night at 4.74. While there is concern over how El Nino will impact on weather during the coming months and, more specifically, whether it will lower the amount of monsoon rains and/or bring early rains to Brazil’s CS which will could curtail the harvest prices are likely to remain relatively well supported. However, it would seem likely prices will struggle to better the highs seen in July and could drop back towards 23.50.