Sugar Market Report for 11 May

Good morning,

The market dropped to a near two month low yesterday as chatter of a production surplus for next season weighed on prices despite Unica data showing the Brazilian CS harvest is still well behind compared with last season. The market had opened 1 point lower but quickly climbed into the plus column. However, this improvement was short lived as prices dropped back as crude weakened. However, there was enough support seen at just below 18.60 to trigger some speculative short covering which saw prices improve the hit the highs of the day just in front of the Unica report. In the event prices did little upon its release but eventually started to weaken with a bout of fund selling on the close to ensure the market settled at its lowest level since the 16th March. The NV ended 2 point firmer at -12 while the VH was a point weaker at -30. The trading volume was poor again at just over 89k lots. In London is was equally as quiet with the QV finishing a tad firmer at +10.30 while the VZ slipped to +1.90. There was limited interest in the WP with the VV WP ending at 96.60 and the VZ WP slightly higher at 94.70. A combination of stalling global demand and increasing production has taken prices down through the recent lows as the funds continue to lighten their net longs and end-users price very much on a scale down basis. The strength of the USD and weakening of the BRL has also added to the bearish mix.

Unica released their harvest data for the second half of April yesterday afternoon. It showed a total of 23.82 million tonnes of cane were crushed production 934k tonnes of sugar with a 37.20/62.80 split. While still well down on the totals for same period last year the actual data beat expectations. Just over 1 million tonnes of sugar was produced during April some 50% lower year on year. However, it was always expected to be a slow start to the season as mills gave the cane as much time to recover from months of dry weather last year. The split is still very much in favour of ethanol but that is expected to correct more as the season progresses.

At a presentation in New York Stone X reported that they see a relatively large global surplus of 4.1 million tonnes in 2022/23 which starts at the beginning of October. They see increasing Asian production will off-set a limited increase in Brazilian production. They see Indian production hitting 35.5 million tonnes this season and a massive 36.5 million tonnes next season. Thai production is also expected to rise by 1.4 million tonnes to 11.5 million tonnes. They also see Chinese production up by 400k tonnes to 10.3 million tonnes. They see demand only growing by 1.1%. They now see 44.8% of CS cane used for sugar production which will result in a total production of 33.9 million tonnes. Their Indian production for next season does seem high but, after this season, when over 5 million tonnes more than expected was produced, little will surprise the market.

This morning the market opened 8 points firmer mainly on a stronger crude quote. However, prices soon slipped back and are currently around 5 points firmer. The NV and VH are both unchanged at -12 and -30 respectively. In early London trading the QV is firmer at +10.80 while the VZ is quoted a tad firmer at +2.20. The macro is a relatively positive picture this morning with most commodities trending higher and the USD index is lower at 103.70. The BRL ended at 5.134 yesterday slightly better against the USD. The sugar market looks weak and prices could sag further today although end-user buying is likely to ensure a orderly drop. The funds could continue to cut longs although they are probably not too far from their smallest net long position seen since mid-April (57k lots) and may want to keep this residual long position. In the short term the macro and Brazil is likely to give some support. There is still uncertainty over the CS harvest which is likely to deter any major sell-off.

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