Sugar Market Report for 22 February

The standout feature of yesterday was the weakening of the front spread which saw it drop over 20 points with the rest of the board ending in the plus column. The market had opened 10 points firmer before slipping back to unchanged. However, the market soon started to improve with prices soon above 20 cents (basis K-23). There was an early afternoon sell-off which saw prices ease back to opening levels. However, good support was found below 19.90 and this encouraged another bout of buying which took prices to the highs of the day and their highest level since 10th February. However, this coincided with good selling of the HK appearing which saw the spread rapidly weaken. It would appear some sell-stops were triggered through +160 taking the spread down to just below +140. Another bout of selling was seen on the close for the spread to settle at its weakest in 7 sessions and some 23 points off the highs of last week. The KN improved by 3 points to finish at +51 although some of the strength was, undoubtedly, derived from the weakness of the spot month. In London the KQ also weakened by $1 to end at +16.80 while the QV was also slightly weaker at +13.50. NY was playing catch-up after being closed on Monday and was digesting the mixed news from India that while production is running at over 5% higher year on year total production could drop considerably and end some 8% lower than last season’s total of 36 million tonnes.

Much conjecture on the situation with the Indian cane harvest. As of the middle of February 25.4 million tonnes of sugar had been produced up nearly 5.4% year on year. However, ISMA, mills and some trade houses are expecting production to drop considerably over the next 3-4 months because of a lack of cane and dropping yields. While some trade houses are talking sub-33 million tonnes as a total others find this hard to understand. While production will, undoubtedly, drop it is far from certain it will collapse from now until the end of the harvest. Time will tell.

The Thai harvest continues. As of the 15th February 67.16 million tonnes of cane had been harvested producing 7.53 million tonnes of sugar, a year-on-year increase of 9.83%. The same concerns impacting Indian production are, to a lesser extent, the same in Thailand. Some believe the harvest could tail off rapidly with less than 100 million tonnes of cane harvested resulting in sugar production around 11 million tonnes. Again time will tell.

This morning the market opened 2 points firmer but has since slipped into the negative column with market currently down 3-4 points. The HK saw some early buying which saw it improve 5 points but it is now 1 point weaker at +139 while the KN is 1 point better at +52. In early London trading, the KQ is a tad weaker at +16.20 while the QV is virtually unchanged at +13.40. This morning the macro is mixed with crude slightly lower, grains/soya mixed and the USD Index is virtually unchanged. Carnival in Brazil means limited action on their currency with the BRL ending at 5.165 yesterday. Despite the weakening of the HK the market continues to look overall firm with dips in flat price seen as a buying opportunity. The OI in H-23 dropped only slightly to 74,696 lots as of COB 17th February. However, 42,860 lots were traded yesterday as the spread weakened. The downside support seen at the triple bottom at 19.61/62 while the up-side target is the double top at 20.28.