Sugar Market Report for 11 November

Good morning,

The market took a tumble yesterday whipping out the gains of the previous three sessions as profit taking appeared after the market failed to push decisively above 20 cents. The market had opened unchanged and initially settled into a narrow trading range. However, after a couple of hours some relatively aggressive selling met with limited buying which saw prices drop over 30 points in the pace of 15 minutes with sell stops triggered as the previous day’s low (19.80) was breached and then again as the 19.60 level was broken. Prices soon regained 10 points or so but the fall was enough to stop any significant recovery and prices remained under pressure for the rest of the session with little prices movement on the release of harvest data from Unica. The HK weakened 8 points to +22 and back to the lows of last week while the KN also dropped 3 points to +34. In London the soon to expire Z-21 saw the ZH end virtually unchanged at +2.50 while the HK slipped to a small discount at -0.60. This meant the WP also slipped lower with the HH WP ending at 72.60 while the KK WP finished at 78.00. The Z-21 OI fell 3,156 lots to 14,366 lots with another 6,186 lots traded yesterday. It is difficult to pin down any singular reason for yesterday’s drop. Perhaps the Unica data was leaked early. Some may see the end of season lasting rather longer than expected and, therefore, sugar production may end slightly higher than some have expected. Certainly the weakening of the HK could suggest this might be the case. The macro also weakened yesterday but not until after sugar had fallen. Perhaps it was merely the fact the market was unable to break above 20.10 (double top) that triggered a bout of long liquidation. Trading volumes remain poor meaning the higher move was unable to hold.

Unica released their harvest data for the seco0nd half of October yesterday afternoon. It showed 17.23 million tonnes of cane was crushed during the period producing 858k tonnes of sugar with a split of 37/63. The amount of sugar produced was slightly higher than expected and may explain the prices weakness although total production still looks likely to be little more than 32 million tonnes. Unica confirmed that 125 mills have finished their operations for the season as of the beginning of November with 134 mills still crushing as of the 1^st November although 87 of them are likely to have stopped by the end of this week.

The Indian government approved raising the price at which oil companies will buy ethanol from sugar mills by 1.3% yesterday. Earlier the government fixed the prices for ethanol produced from cane at 62.65 rupees a litre. These measures are being put in place to help divert cane away from sugar production. Of course much will depend on demand for ethanol which is expected to grow over the coming years but unlikely to stop mills producing around 31 million tonnes of sugar this season.

Ukraine’s sugar refineries have produced 873,400 tonnes of white sugar from 6.35 million tonnes of sugar beet so far this season the national sugar union said yesterday. Ukraine expanded the area under sugar beet to 227,100 hectares in 2021, from 201,600 hectares in 2020. It plans to increase sugar output from sugar beet to 1.4 million tonnes in 2021/22. The country produced about 1 million tonnes of white sugar last season.

The Thai harvest is expected to start around the second week of December. Last season the cane crop was just 66.6 million tonnes. This season after good weather and increased plantings estimates seen cane production at between 85 and 95 million tonnes which could suggest sugar production will improve from 7.5 million tonnes to perhaps closer to 10 million tonnes.

This morning the market opened a couple of points firmer in quiet trading before improving another 6-7 points. Currently,

The HK is around 3 points fimer at +25 while the KN is a couple of points firmer at +36. In early London trading the ZH is firmer at +3.40 while the HK is also a strnger valued around flat. The macro is mixed this morning with crude a tad higher while grains/soya are lower. The standout feature is the strength of the USD Index which has improved 1.2% over the past 2 days due to inflationary concerns. The index last at 95.10 higher level since July 2020. The sugar market, again, seems rather directionless. A push above 20 cents was rather fleeting in the end although support at 19.50 seems pretty solid. Therefore, another period of consolidation may have to be expected between these levels.