Sugar Market Report for 20 September

Good morning,

A shortened session due to London being closed for the Queen’s funeral saw prices drop lower again with H-23 dropping to its lowest level since 13th August 2021 before recovering to end in the middle of the day’s range. The market had opened unchanged and at the highs of the day before immediately dropping losing 37 points over the next three hours. Some support was found below 17.20 which, eventually, triggered a bout of short covering which saw prices improve some 18 points by the close. The VH ended unchanged at +32. The OI in V-22 continues to drop. As of COB Friday it hit 95,010 lots considerably lower for this stage before expiry for the past 10 years pointing to a small delivery. The HK improved 4 points to end at +55. The market’s continuing slide out of the range seen for the past month does not seem to be on any one particular factor but, probably, more a case that a surplus is expected for next season and that Brazilian ethanol parity is well below current levels – estimated currently at below 15 cents.

The COT as of 13th September showed the funds/specs had cut their net short position by 19,745 to just 5,580. This was during a period the market had remained range-bound but had increased nearly 40 points during the reporting period. The non-commercials cut their net short position by 12,640 to 17,532 but, given the drop in prices over the past two sessions, have probably increased their net shorts again and maybe around 30k net short at the moment. The commercials increased their net short position by 16,818 to 173,878 as producer selling was noted mainly from Brazil. The index funds cut their net long position by 2,927 to 179,558.

Broker Stone X have increased their projected global surplus for 2022/23 by 600k tonnes to 3.9 million tonnes. They see total Indian production reaching 36.5 million tonnes and Thai production at 11.5 million tonnes. Dry weather across the EU and China will see production cut to 16 million tonnes in the EU and 10 million tonnes in China but with Brazil continuing to recover from drought that hit their 2021/22 cane crop it will be easily off-set.

India’s top sugar producing state, Maharashtra, is likely to produce another record breaking amount of sugar in 2022/23 according to state Government. It is estimated that total production could hit 13.8 million tonnes slightly above last year’s total of 13.7 million tonnes. It is expected the cane crush will start on the 15th October. However, mills are still awaiting Government’s export policy for 2022/23 which is thought to see an initial tranche of 5 million tonnes and then another 3-5 million tonnes late in the season once the harvest progress is assessed.

The EU’s crop monitoring service MARS reported yesterday that they see average sugar beet yield at 73.2 tonnes per hectare down from their previous estimate in August of 75.3 t/ha as the dry hot weather continues to take its toll.

This morning the market opened 11 points firmer before falling back. Currently, the market is 5-6 points firmer. The VH and HK are unchanged at +32 and +55 respectively. In early London trading the ZH is a tad weaker at +30.10 while the HK is also weaker at +10.90. The macro is a more positive picture than of late with most commodities trending higher. The USD Index is weaker while the BRL finished stronger against the USD at 5.17 yesterday. The sugar market may try to find some support around current levels. Despite talk of global production surpluses for next season the structure remains firm with the V-22 still at a decent premium while white sugar remains very firm well into next year. There is still some uncertainty over the eventual Brazilian production and estimates vary for Thai production. Nevertheless, there would seem little reason for prices to improve substantially from current levels with any strength likely to be seen as a selling opportunity.