Sugar Market Report for 21 April

Good morning,

The market bounced back yesterday to hit seven week highs on the back of renewed concerns over the Brazilian CS cane crop and a general positive macro picture for agricultural commodities. The market had opened 4 points firmer with good buying immediately propelling higher with the opening print to low of the day. Prices continued to rally gaining 55 points as good buying met with little resistance until prices hit the highs of February. Although these levels were broken, eventually, some profit taking appeared taking prices down some 30 points from the highs mid-afternoon. However, more fund buying appeared pushing prices back towards the highs with a strong settlement just 8 points off the highs. The KN actually dropped 3 points to end at +5 with seemingly limited interest in anyone taking delivery. However, the NV ended 9 points firmer at +14. In London the structure actually weakened slightly with the QV ending a tad lower at +7.00 while the VZ dropped to end at +0.40. This meant the WP weakened again with the NQ slipping $3 to finish at 86.50 while the VV WP was slightly weaker at 89.20. It was a good performance yesterday especially after the drop the previous session. General concerns over prospects for the current Brazilian CS cane harvest and the weather issues in France and Germany were the main catalysts for the rally plus general up-beat sentiment across many agricultural commodities.

Wilmar sugar analyst reported yesterday they fear the Brazilian CS cane crop is suffering from dry weather and total crush will only reach 530 million tonnes compared with 605 million tonnes last season. This means they see sugar production down between 15-20% lower than last season’s record 38.5 million production at between 31 and 33 million tonnes. This news was probably the main driver of the rally yesterday as the prediction is well below other current estimates which are now centring around 35 million even taking into consideration the current dry weather. Wilmar also argue that ethanol production will fall to between 23-25 billion litres from the 27.8 billion litres produced last season which could see mills ramping up production of ethanol instead of sugar if transport fuel demand improves as Brazil recovers from the pandemic. This is, of course, very uncertain as they continue to suffer massive problems with surging cases of Corona. Contrary to Wilmar the USDA see total cane production for the season down some 3% at 635 million tonnes compared with the total crush of 657 million tonnes in 2020/21 suggesting sugar production only marginally lower. It would appear the truth lies somewhere between the two estimates but until the crush cranks up into top gear for a more accurate picture the market will remain very nervous.

This morning the market opened 6 points lower before slipping further on some early profit taking. However, the volume is thin. Currently, the market is holding around 10-11 points lower. The KN and NV are unchanged at +5 and +14 respectively. With eight trading sessions to go before the K-21 expiry it looks, at the moment, it will be a fairly small delivery. The OI was just under 91k lots as of Monday COB with another 29k lots traded yesterday. It would seem most traders have rolled out of the spot position wary of being caught in the price spike seen in front of the H-21 expiry. In early London trading the QV and VZ are virtually unchanged at +7.00 and +0.40 respectively. The macro is mixed this morning as equity markets recover from yesterday’s weakness. Crude barely changed and USD index unchanged. The market remains very well supported with the funds reinstating longs sold out in March. The large questions over the Brazilian crop will persist and with other issues in the EU the predicted surplus for next season could quickly vanish. However, there are also big questions over consumption as many parts of the world continue to struggle with the pandemic.