Sugar Market Report for 12 August

The rally off the lows continued yesterday with prices ending at their highest level since 20^th July. The market had opened unchanged but slowly eased lower during the morning. However, as US traders got to their desk prices started to improve as fund short covering emerged. Prices soon pushed through the highs of the previous session to reach the day’s high of 18.50 where more resistance was found. Prices initially dipped on day-trader liquidation before another bout of buying saw prices revisit the highs only slipping a couple of points on the close. The VH remained unchanged at -2 while the HK improved 3 points to end at +65. In London prices improved in line with NY with the VZ ending unchanged at +27.20 while the ZH was firmer at +16.40. The WP also improved marginally with VV WP ending at 147.50 and the VZ WP at 120.30. After the strong performance the previous session it was likely that more fund short covering would be triggered which was evident as prices improved during the afternoon despite no particular bullish fundamental news. However, better selling was encountered above 18.50 mainly Brazilian as sugar continues to pay better than ethanol while Indian sugar is still not profitably at current levels and the export policy for next season has not been announced by the Government as yet.

Petrobras it is lowering the refinery price of diesel by 4% starting today which is the second cut of the week. However, gasoline prices were kept unchanged. The drop in price was praised by President Bolsonaro who is keen to keep fuel prices in check to help control inflation and his Presidential election chances.

US weather forecaster reported yesterday they see La Nina gradually decreasing during late winter from 86% during the Northern Hemisphere autumn to around 60% during the winter. While La Nina has persisted over the past couple of years it has had limited impact on South American weather with much better rainfall across the main sugar areas this season after drought conditions hit the 2021/22 CS cane crop hard.

Since Unica released their harvest data for the second half of July there has been more speculation on the final sugar production figure. With sugar continuing to pay better than ethanol it is now down to the amount of cane available and ATR achieved. Several analysts are now expecting total production to better last season’s pretty poor 32 million tonnes albeit by no more than 1 million tonnes. Nevertheless, this will be considerably better than the 29 million tonnes forecast by Louis Dreyfus earlier in the season when crude prices were considerably higher and the sugar/ethanol split was expected to remain well in favour of ethanol. With the harvest only around 50% completed a lot can happen over the 4-5 months.

This morning the market opened 1 point firmer before improving further mainly on back of the firm close yesterday making a new high for the move. However, the early buying soon dried up with prices swiftly slipping back. Currently, prices are 1-2 points lower. The VH is 1 point better at -1 while the HK is also 1 point firmer at +66. It would seem likely that the front spread will end at a premium if the flat price strength persists. In early London trading the VZ is firmer at +28.40 and the ZH also at +17.90. The macro this morning is mixed with crude slightly firmer, grains/soya lower and the USD Index slightly firmer. The BRL ended slightly weaker last night at 5.13. There would seem little reason for prices to improve too much more from a fundamental basis but if the funds continue to cover shorts then prices will, undoubtably, improve further. 18.50 would seem a fair prices for the time being.