Sugar Market Report for 14 August

The market improved again on Friday settling at its highest level since the beginning of the month. The market had opened 4 points higher but was soon heading lower bottoming out near the lows of the previous session mid-morning. As US traders got to their desks the market started to improve and continued to climb on fund and trade buying throughout the remainder of the session to close near the highs of the day. However, the trading volume remained underwhelming at just over 100k lots. The VH lost 1 point to end at -23 while the HK improved 8 points to +131. In London while the flat price improved the structure weakened slightly with the VZ at +12.10 and the ZH at +10.40. This meant the WP also slipped slightly with the VV WP finishing at 160.70 and the VZ WP at 148.60. It was another solid performance as most of the losses seen earlier in the month wiped out as funds started to reinstate liquidated longs. Continuing talk of a deficit in production for 2023/24 is keeping the market buoyant.

The COT report as of the 8th August showed that the funds/specs had continued to liquidate longs. They cut their net longs by 21,904 to 111,626 during a period the market dropped just over 90 points. The non-commercials cut their net longs by 18,202 to 80,657 although since the report date have reinstated some longs and probably stand around 95k lots net long. The commercials cut their net long position as end users priced and trade covered shorts. Their net shorts dropped by 21,433 to 297,547. The end user pricing suggests good support building below 23.50 with more to do if prices drop back. The Index funds increased their net longs by 473 to 185,919.

According to Czarnikow global sugar demand for raw sugar fell 20% during the first six months of this year compared with a year earlier. However, global use of refined sugar was stable suggesting end users have been using their stocks waiting for a drop in raw sugar prices. This has been borne out by the last couple of COT reports which has seen decent end user pricing when prices fell. However, they have a lot more to do which suggests a floor price is now in place. It is also likely to be the case that buyers have been waiting for Brazilian raw sugar to be shipped knowing they would be producing huge quantities which has been the case so far. The continuing high White Premium prices that has, recently, increase further, is testament to the situation.

The bi-annual Reuters sugar poll was released on Friday. The 11 traders and analysts see prices closing at 24 cents at the end of the year. This is considerably higher than the expected 18.5 cent end of year call in the last poll carried out in February. White sugar prices are seen as ending the year at $695.60 which puts the WP at around $166.00 despite the HH WP valued at 133.15 COB Friday. The poll’s median estimate is for a 2.1 million tonne deficit. This in stark contrast to the 4.2 million tonne surplus forecast in February. This despite a hefty increase in Brazil’s CS to 39 million tonnes from 33.7 million tonnes in February. Indian production is seen at 32.15 million tonnes. While interesting to see views of analysts Reuters polls have been notoriously inaccurate in the past.

This morning the market opened 3 points lower before improving. Currently, prices are 1 point firmer. The VH is unchanged at -23 while the HK is 3 points firmer at +134. In early London trading the VZ is a tad firmer at +12.20 while the ZH is unchanged at +10.20. The macro is mixed this morning with crude lower but grains/soya generally higher. The USD Index is a tad former while the BRL ended at 4.91 on Friday. Continuing concerns over how El Nino could impact on global weather and the prediction of a deficit in production over demand will keep prices firm for the time being. Add in the belief that end users need to replenish stocks the downside would look limited and the up side more enticing given the funds have ample ammunition to increase their long position.