Sugar Market Report for 16 May

Good morning,

Friday saw the market make a dramatic correction after six sessions of new lows rallying to its highest level since 6th May. The market had opened 8 points firmer before slowly but steadily improving throughout the morning adding another 13 points before prices dipped slightly and back to opening levels. However, as US traders got to their desks prices started to improve again gaining nearly 50 points before the close. Some late resistance was noted at 19.20 which meant a double top was formed at 19.21/20. However, it was a positive close as the market corrected from dropping 110 points since the end of April. The NV improved 3 points to finish at -9 while the VH gained 4 points to end at -22. In London it was quiet despite the big move higher. The QV ended slightly firmer at +12.60 as did the VZ ending at +4.00. The WP improved again with the VV WP ending $3 firmer at 98.50 and the VZ WP at 94.50 but interest was limited with no block trades. A correction was probably on the cards after the recent tumble in prices. The NY sugar week had seen traders generally bullish to the market and this appeared to encourage some buying as recent production estimates for Brazil’s CS are cut by analysts.

The COT as of the 10th May saw the funds/specs cut their net long position by 18,337 to 92,234 during a period when the market dropped 11 points. The non-commercials cut their net longs by 17,030 to 58,824. This is a similar position they had in the middle of March just after the market had dropped to 18.44. They may have sold more on Wednesday and Thursday last week when new lows were reached but the short term funds are likely to have covered shorts on Friday. Currently, the funds are probably around 60k lots net long. The commercials cut their net short position by 26,137 to 336,919 as end-users bought as prices dropped. The Index funds also cut their net longs by 7,000 to 244,682.

Brazil’s Archer consulting have cut their expectations for Brazil’s CS cane crop for 2022/23 in line with other analysts. They now see the total cane crush at 548 million tonnes which is a small 4 million tonne reduction from their previous estimate. However, they have cut their sugar production by 4.5% to 31.50 million tonnes due to lower agricultural yields. They also see more cane being allocated to ethanol with a split of 43.8/56.2 which is down from their last estimate of 45.2/54.80.

This morning the market opened a staggering 53 points higher as several large buy stops were triggered at market. Prices immediately dropped back 42 points before improving again and are currently around 27 points higher. The NV and VH are both 3 points firmer at -6 and -19 respectively. In early London trading the QV is firmer at +13.10 while the VZ is also firmer at +4.70. The opened print will have surprised all but the buyers. Whether it is related to the jump in the wheat price (after India banned exports over the weekend) or just a fund deciding to exit a short position is impossible to know. Lets hope it was not a ‘fat finger’ error. The market was probably due higher due to the good close and bullish sentiment that appears to have developed over the past few days but another 50 point jump is hard to justify. Nevertheless, this has set the tone for the day and it is likely prices will push back towards the opening print. A relatively large chart gap was formed on the opening between 19.20 and 19.28 which will be the down-side target for the time being. For what it is worth the macro is mixed this morning with crude lower while grains/soya are much firmer on the Indian wheat news. The USD Index is slightly lower at around 104.5 while the BRL improved on Friday to end at 5.06. Whether the jump in prices (excluding the opening level) is justified is open to debate. However, concerns over Brazil’s sugar production remain and is fuelling the rally and should keep prices firm.

 

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