Sugar Market Report for 10 February

The market improved again yesterday led by the spot month again. The market had opened 9 points firmer before improving another 30 points over the next hour. The market became more volatile during the afternoon with prices initially dipping before rallying to their highest level since the beginning of the month. At one point it looked as if the multi-year highs would be challenged that were hit last week. However, the buying dried up which triggered speculative long liquidation drop back to the lows reached earlier in the day. The marker saw a small recovery before settling into a relatively narrow range through to the close with the market ending just below the middle of the day’s 50 point range. The HK improved again ending up 11 points at +144 its highest settlement since just before Christmas. The KN was more subdued improving just 1 point to +71. In London with now, just two sessions until the H-23 expiry the HK improved slightly to finish at +3.90 while the KQ was a tad lower at +17.40. The OI in the H-23 dropped to 10,752 lots with another 5,025 lots traded yesterday. It would now seem around 350k tonnes of sugar might be delivered similar to the 358k tonnes delivered last year. The HH WP dropped to 99.40 while the KK WP ended virtually unchanged at 127.20. It was another strong performance as shorts and end-users continue to be squeezed out of their H-23 positions in front of expiry. More fund buying of flat price but mainly spreads was seen as the Index fund roll begins to wind down.

The CFTC and ICE exchanges announced yesterday that no COT will be published tonight for the second week running due to ongoing issues with ION software that continues to impact on some clearing members ability to reconcile trades and positions. The issues with ION appear to be being resolved but it is likely it will take several more days before some clearing members will be fully up and running with most needing to do their own system testing.

The Thai Office of the Cane and Sugar Board reported yesterday that they expect to export 9 million tonnes of sugar this season which would represent an increase of 17% over last season. In total the Board expected around 11.5 million tonnes of sugar from 106 million tonnes which is around most analysts’ expectations although above some.

The US weather forecaster CPC reported yesterday they expect ENSO-neutral conditions to begin to develop within the next two months and persist through the Northern hemisphere spring and early summer. This means neither El Nino nor La Nina weather phenomenon will be present suggesting normal weather conditions across the globe.

This morning the market opened 4 points before improving another 9 points. Currently, prices are 10 points higher. The HK is unchanged at +144 while the KN is 2 points firmer at +73. In early London trading the HK opened slightly lower at +3.10 while the KQ is firmer at +18.70. The macro is quiet and mixed this morning. Crude is a tad lower while grains/soya a little higher. The USD Index is slightly weaker and just below 103.00 while the BRL ended slightly weaker last night against the USD at 5.27. The market continues to look firm but this would seem a consequence of the very strong spot month. Whether the H-23 can reach the highs seen last week remains to be seen. H-23 option expiry Wednesday 15th February with largest OI at 20.50 calls (13,225 lots), 21 cent calls (6,259) and 22 cent calls (12,620 lots). There is limited OI in H-23 puts. Therefore, a test of 22 cents cannot be ruled out but is there any justification from a fundamental point of view?