Sugar Market Report for 12 November

Good morning,

The market saw a dramatic reversal yesterday as prices improved regaining the losses of the previous session and hitting their highest level in a month. The market opened a couple of points firmer with prices soon improving leaving the opening print the low of the day. The market gained another 18 points during the morning but it was not until the early afternoon that the gains became more substantial as buy stops were triggered at 19.75 and again at 19.90 which saw prices over 20 cents. Fresh buying appeared which, eventually, took prices through the double top at 20.10 with the highs of the day being hit during the post-settlement period. Despite the move the trading volume only just reached a tad above 97k lots which probably explains the volatility over the past couple of sessions with prices dropping nearly 40 points on Wednesday only to gain 55 points yesterday. As to emphasis the speculative nature of the flat prices buying the HK improved just 3 points to +25 while the KN gained 4 points to +39. In London the ZH gained over $4 to end at +6.80 with two sessions until expiry. The OI in Z-21 dropped to 12,759 lots with another 4,148 lots traded yesterday. It is now looking as if the delivery will be in the region of 500k tonnes. The HK also improved back to a premium of +1.80. The HH WP ended virtually unchanged at 72.40 while the KK WP slipped nearly $2 to 76.10. It remains difficult to pinpoint the reason for the sharp reversal yesterday. It was probably a combination of a positive macro (crude firmer) limited resting orders in the market and a relatively positive technical picture. Chatter about India looking to divert more cane to ethanol and building concern over global inflation also added to the mix as did firmer coffee prices and a firmer BRL which ended last night at 5.40.

While it continues to rain across Brazil’s CS region replenishing soil moisture levels there is the lingering fear that La Nina may cause drier conditions over the coming months. The US government weather forecaster, CPC, reported yesterday that they see a 90% chance of La Nina conditions prevailing through the Northern Hemisphere winter and into next year’s spring. However, after that they see neutral conditions with neither La Nina or El Nino present. How much La Nina will impact on Brazil and the CS remains to be seen but lower than average rainfall over the next 4 months could be bad news for the cane already damaged from drought on frosts earlier this year.

This morning the market opened 1 point lower but soon improved pushing through the highs of yesterday. However, prices then eased back to unchanged. Currently, prices are pushing higher again and are 5 points firmer. The HK is a couple of points firmer at +27 while the KN is also 2 points better at +41. In early London trading the structure has improved with ZH at +7.70 and the HK at +2.40. This morning the macro is mixed with crude lower and grains/soya mainly higher and the USD Index is around unchanged but still around its highest level since July 2020. As mentioned the BRL was stronger at 5.404 last night. After the strong reversal seen yesterday it might be expected that prices should continue to improve. However, the macro will continue to have an influence on market direction so if energy dips further it might hamper any further improvements especially as the trading volumes remain poor. Nevertheless, the market’s ability to recover suggests it is well supported and the technical picture also remains positive with a raft of higher lows over the past three weeks. The market is also underpinned by a bullish fundamental picture able it well embedded in the market.