Sugar Market Report for 10 January

The market saw some consolidation yesterday as it bounced off the lows after the dramatic 225 point drop from the highs. The market had opened 6 points firmer before dropping back. A swift test of Friday’s lows saw a new low in place (albeit by just 2 points) but there was limited follow-through selling which soon encouraged some speculative short covering which saw prices improve some 20 points off the lows. Prices then slipped back slightly in anticipation that more fund selling might appear once US traders got to their desks. In the event this did not happen and prices soon improved further hitting the day’s highs shortly before settlement. Some day-trader liquidation was seen during the settlement period which saw prices swiftly drop 12 points. Nevertheless, it was a relatively positive close suggesting that, for the time being, the lows may be in place. The HK dropped to +101 in early trading but climbed to end 6 points firmer at +111. The KN also finished 5 points stronger at +62. London also saw an improvement with the HK improving $4 to end at +17.40 while the KQ was also a bit firmer at +16.30. This meant the WP also improved with HH WP at 112.90 and the KK WP at 120.00. The fund selling, which had been so prevalent last week, appeared to become thinner yesterday with prices back in the range seen before the surge over 21 cents.

Again there is limited fresh fundamental news around. The situation in Brazil seems to have calmed since right-wing supporters of ex-President Bolsonaro stormed Congress on Sunday. The BRL did react dropping to 5.30 at one point but recovered to end at 5.25. The decision by the new Government to not reinstate federal taxes on gasoline has had more impact. Analysts now think it suggests that President Lula may rethink fuel pricing policy and could be bearish for sugar as it could push ethanol parity to a low level. It continues to rain heavily across the CS which will mean operations for the season will finish for all mills with total production probably reaching around 33.4 million tonnes. However, the rains will be beneficial for the next cane crop. With cane remaining uncut due to rain curtailing field operations this season may mean an early start to the season assuming the weather allows.

This morning the market opened unchanged before slipping slightly mainly on a negative macro picture. Currently, prices are 2 points higher. The HK is 3 points firmer at +114 while the KN is 1 point lower at +61. In early London trading the HK is firmer at +18.90 while the KQ is also slightly firmer at +17.00. As mentioned, the macro is negative with most commodities lower while the USD index is slightly firmer but still around its lowest levels since June. The market looks likely to continue to consolidate around current levels assuming the macro does not deteriorate further. The structure still remains strong despite the recent drop which will also be a supporting feature now the fund long liquidation has dried up. Good scale down buying is building below the market but whether this will translate into higher prices remains to be seen but, perhaps, prices improve back to around 19.50 where some consolidation was seen before prices rallied.