Sugar Market Report for 21 August

The market slipped lower on Friday settling at its lowest level since 9th August despite news from India that August monsoon rains have been poor so far. The market had opened unchanged but was soon under selling pressure which saw prices slowly slide lower for much of the session only to bounce a little on the close when day-traders covered shorts. It was a quiet session although the trading volume was better than of late at just under 112k lots. The structure continued to remain under pressure with the VH falling to -30 its lowest since last September. The HK also slipped lower ending at +116 down 6 points on the day and its lowest level since the end of June. Burgeoning production out of Brazil and limited demand seem to be the main reasons for the weakness. In London the VZ also weakened but only marginally in the end after dropping to +12.30 earlier in the session before settling at +14.40. The ZH also came under pressure and was unable to recover closing on its lows at +8.50 down just over $1. This meant the WP dropped back as well with the VV WP ending at 163.20 and the VZ WP at 148.80. The weakness is NY structure seemed to have a knock-on impact on the flat price although prices remain within the range seen during August.

The COT report, as of the 15th August showed that the funds/specs cut their net long position by 8,147 to 114,218. The non-commercials cut their net longs by 2,778 to 77,879. This was probably a little of a surprise given prices improved during the reporting period by nearly 1 cents before falling back. It does suggest the funds have limited interest in increasing their longs significantly at the moment. The commercials cut their net short position by 1,546 to 296,000 with the trade increasing both gross longs and shorts during a week of low trading volumes. The Index funds cut their net longs by 4,138 to 181,781.

Somewhat scare headlines from Reuters that India is heading for its driest August in more than a century with scant rainfall likely to persist across large areas with the emergence of El Nino being blamed. Overall India received 90.7mm of rain in the first 17 days of the month nearly 40% below normal. Monsoon rains are expected to improve in the northeast and some central regions but will remain dry in northwestern and southern areas. Traders will be watching the forecasts closely. The news was out Friday morning but had little impact on sugar prices but, undoubtedly, will be seen as a supporting factor. In Brazil, the rain episodes seen over the past week appear to have passed with dry weather forecast for the next 10 days. This will allow the crush to continue apace with the recent rains having been beneficial to the cane.

This morning the market opened 4 points stronger before improving. Currently, the market is 10 points firmer. The VH and HK are both unchanged at -30 and +116 respectively. In early London trading, the VZ is a tad firmer at +14.70 while the ZH is unchanged at +8.50. This morning the macro is a positive picture with most commodities trending higher. The USD Index is a tad lower while the BRL ended virtually unchanged at 4.97 on Friday. The market looks pretty well supported with end-user buying from 23 cents and bullish fundamental picture. Add the fact that the funds have a relatively small net long position and the up-side looks to have more potential at the moment.