Sugar Market Report for 14 July

Good morning,

The market hit a one month high yesterday as a combination of better macro, strong white sugar market and disappointing Unica harvest data saw prices claw back the losses of the past two sessions. The market opened unchanged but immediately improved on good market on opening buying with the opening print the low of the day. The gains stalled initially with the market becoming range bound until US traders got to their desks when prices started to improve again. Resistance at 19.00 cents did trigger a bout of swift speculative liquidation which took prices down 20 points before they improved again, this time taking out the 19 cent level and improving another 20 points. The highs of the day were reached shortly before settlement before some day-trader liquidation trimmed the gains on the close. Nevertheless, it was a good performance with limited selling encountered as prices improved. The VH gained 8 points to end at -12 while the HK gained 5 points ending at +77 its highest level since 18^th May. In London the Q-22 remained exceptionally strong with the QV surging to +49.00 before ending at 39.70. With two sessions to go before expiry the OI in Q-22 dropped to 8,422 lots with another 6,023 lots traded yesterday suggesting a small delivery. The VZ also improved to end $2 firmer at +23.70. However, the WP eased slightly (apart from against the spot month) with the VV WP ending at 123.90 and the VZ at 100.20. Yesterday gains were probably to be expected after the macro turned neutral but the extent of the gains may have surprised. The Unica data for second half of June, released when the macro was very weak and crude prices were tumbling, was bullish and it was, perhaps, the main reason for the price strength. Additionally, very limited resting selling was seen with producer selling still above the market. However, end-users are well priced so are unlikely to follow price higher.

Apart from Brazil’s current cane harvest there is little fresh fundamental news with India and Thailand inter-season. The monsoon seems to be adequate and still suggests both countries will produce as much if not more sugar next season. India has export constraints which will hamper any fresh sales until the Government makes clear their export policy for 2022/23. The white sugar market is still very strong which has seen refiners increasing production but it will take time to get into the market. The jury is still out on the amount of sugar Brazil CS will produce. Currently, best assumption is unchanged from last season at 32 million tonnes but is more likely to struggle to reach than breach. Demand is also uncertain. The global recession that the markets are predicting may well weigh on demand for sugar but will take some time to register – the global economy is still growing at the moment.

This morning the market opened unchanged before slipping lower. Currently, prices are 5-6 lower. The VH and HK are unchanged at -12 and +77 respectively. In early London trading the spreads are stronger yet again. The QV is valued at +40.50 and the VZ at +24.20. This morning the macro is mixed with crude slightly lower, grains/soya firmer and the USD Index making a new 20 year high. The BRL ended at 5.392 yesterday but may slip further today. While the USD remains so firm it is difficult to see sugar surging higher. Nevertheless, with white sugar remaining so firm the down side would seem limited and the market may try to consolidate just above the 19 cent level. Trading volumes are dropping and with summer across the Northern hemisphere it might quieten although this may increase volatility.