Sugar Market Report for 17 May

Good morning,

Yesterday saw prices rally higher again adding to the large gains of Friday. The market settled 138 points off the lows and at its highest level since 21st April. The market saw an extraordinary opening with the spot month opening 53 points higher as large volume was bought at market. The first few seconds saw a 42 point range as prices immediately dropped back to 19.28. Indeed the entire range of the day was seen in this time. The market then quietened as traders took stock of the situation. There appeared to be no particular reason for the huge jump – either a fund deciding to liquidate or wanting to establish a large long position the latter seemingly rather reckless. Chatter after the event pointed to the Indian ban on wheat exports as a reason but seems unlikely. The market soon settled into a relatively narrow 12 point range until early afternoon when prices started to push higher gradually pushing up to the opening level by the close. Unsurprisingly, the trading volume was better than of late at just over 147k lots as fund buying noted. The NV slipped a couple of points to end at -11 while the VH was 3 points firmer at -19. In London the structure tightened further with the QV up nearly $2 at +14.40 while the VZ also finished firmer at +5.90. However, the WP did not move too much with the VV WP ending at 98.50 and the VZ WP at 92.60. The market was also buoyed by buying across the agricultural complex triggered by India announcing an export ban on wheat and talk of cold weather across Brazil’s coffee fields. Although rather too early for an serious damage to be inflicted last year’s frost are still fresh in traders minds and these early cold temperatures could herald a cold winter.

There is a growing view that some Brazilian mills are cancelling sugar export contracts to enable them to produce ethanol. Estimates so far are between 200k to 400k tonnes. Currently, ethanol production pays better than sugar production. There will be costs to cancel contract so it is likely these contract were concluded fairly recently with the pricing levels at or above current levels. A large percentage of exports were priced last year at much lower level which are likely to be too expensive to cancel. It is estimated that ethanol parity is around 20 cents. Whether these reported cancellations are just the beginning and more contracts will be cancelled remains to be seen. Much will depend on energy prices over the next few months and the price of gasoline in Brazil. Nevertheless, with all eyes on Brazil CS harvest and the sugar ethanol split it will be seen as positive for prices.

Despite to Russian invasion Ukraine’s major white sugar producer Astarta reported yesterday they have completed their sugar beet sowing for the year at 33,000 hectares almost the same as last season. The agricultural ministry reported last week that total beet plantings had reached 181,400 hectares as of May 12th compared with 224,700 hectares by the same date last year. No a bad effort considering the immense problems the country is enduring at the moment.

This morning the market opened 2 points lower before improving and breaking above yesterday’s high. Currently, prices are some 2 points firmer. The NV and VH are both unchanged at -11 and -19 respectively. In early London trading the QV is a tad firmer at +14.60 while the VZ is a tad weaker at +5.60. The macro is a mixed picture this morning with crude a tad lower while grains/soya are also lower apart from wheat. The USD Index is down and below 104.00. The BRL was a little firmer ending at 5.05 last night. The market looks likely to remain firm with chatter about cancelled sugar export contract, cold weather in Brazil and general fund buying noted across the commodity spectrum. The market is likely to improve further with 20 cents the next upside target. A chart gap left on yesterday opening between 19.20 and 19.28 is the downside support but it would seem a filling of this gap will have to wait.

 

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