Sugar Market Report for 20 July

Good morning,

The market took a tumble yesterday ending over 50 points lower after Brazil’s Petrobras cut gasoline prices by about 5% which is seen as impacting the amount of cane that goes to ethanol production. The market had opened 10 points lower before rallying slightly on a better  crude quote. However, the gains were only temporary and after hitting the day’s highs prices started to drop.  Some support was, initially, seen around 19.20 but as US traders got to their desks prices fell further on long liquidation fresh selling and limited scale down buying. There was little support seen at 19.00 cents although a bout of day-trader short covering was seen after prices hit 18.90. However, the selling soon had prices dropping lower with the market hitting the day’s lows on the close. The VH lost 7 points to end at -19 while the HK was also 7 points weaker at +72. In London the structure weakened again with the VZ ending at just below +20.00 it lowest since 11th July. The ZH also weakened slightly to end at +9.70. The market was under pressure from the opening yesterday with the announcement from Petrobras adding to the bearish sentiment. The macro remains under pressure, London is weakening following the Q-22 expiry and Brazilian ethanol parity is seen to be below 16.50 so it was not too much of a surprise prices dropped especially as decent buying is unlikely to be found before 18.00 cents.

Brazil’s Petrobras announced yesterday that they will reduce gasoline prices at its refineries by about 5% today. This will be the first time gasoline prices will have been reduced since December 2021. This comes on top of the Government’s capping of state fuel taxes. President Bolsonaro has been pressuring Petrobras to lower prices for several months and has led to several management changes at the top of Petrobras. Bolsonaro is keen to keep inflation in check with the Presidential election in October. It is thought prices will drop to 3.86 BRL per litre from 4.06. Unless there is a large increase in world crude prices it would seem unlikely prices will increase in front of the election. How the drop in gasoline prices will impact on the sugar/ethanol split during the current harvest is difficult to gauge although it will not encourage mills to produce more ethanol. The split is now likely to improve possibly more than many had anticipated and above last season’s 45/55 average spilt and possibly up to 46/54. Therefore, final production will now be determined by the amount of cane available and the ATR. It is difficult to see a large increase in expected production but may mean any downside surprises are limited.

This morning the market opened 3 points firmer this morning. Currently, prices have improved by 10 points. The VH and HK are unchanged at -19 and +72 respectively. In early London trading the VZ is weaker again at +19.40 while the ZH is also a tad weaker at +9.50. The macro is a mixed picture this morning with crude slightly lower along with grains/soya while the USD index is a little weaker again. The BRL ended unchanged at 5.41.  The market ended weaker yesterday and its lowest settlement in a week. Although the gasoline reduction in Brazil is now in the market it is likely to continue to weigh on prices. The macro will continue to remain as an influencing factor especially for intra-day movements. In the short term a double bottom at 18.82/80 may add some support but a drop to 18.50 cannot be ruled out. The liquidity remains poor so volatility will remain so prices could bounce but it is difficult to see any serious recovery in the short term.

 

Contact the ADMISI Sugar Desk team:

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

 A subsidiary of Archer Daniels Midland Company.

 © 2022 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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