Sugar Market Report for 22 July

Good morning,

The market made another leg lower yesterday to extend the drop to over 100 points in the past three sessions as the market continues to be battered on several fronts. The market had opened 3 points higher before improving a tad more. However, the limited gains were short lived with the highs of the day soon hit. The market soon started to decline with prices slipping quickly into the negative column. Some support was found around 18.50 but, eventually, the selling eat away at the resting buying and prices broke lower which appeared to trigger another bout of fresh selling which quickly took prices down to the lows of the day and their lowest level since 7^th July. Late profit taking on the day saw prices bounce off the lows but it was a poor performance with prices falling back over 65% from the rally seen at the beginning of July. The VH ended unchanged at -18 while the HK ended 2 points weaker at +69. In London the front spread improved for the first time in a week and since the expiry of the Q-22. The VZ ended at +20.60 while the ZH ended unchanged at +9.20. This meant the WP improved with the VV WP reaching 128.00 while the VZ finished at 107.50. Sugar joined the decline of most commodities yesterday as increasing interest rates and the prospects of a global recession continued to spook investors who continue to take a risk-off attitude. Total OI interest in NY sugar dropped below 700k lots (698,413 lots) for the first time since November 2017 which emphasises this risk aversion in commodities at the moment.

Sugar seems to be caught in some bearish head winds. The macro would seem to be the biggest contributor to the recent weakness which has seen investment funds closing both long and short positions. The macro has also contributed to the situation in Brazil where fuel costs have dropped and the BRL has weakened which has made sugar production more profitable than ethanol. The Indian monsoon has picked up recently across most cane regions suggesting another very large production next year. The weather has also been beneficial across Thailand with production likely to improve again in 2022/23 after continuing to recover from the country’s lowest production in 10 years. The one area of concern is the EU and UK where record breaking temperatures are stressing the beet. However, how much impact on the beet the heat will have will depend on the weather through to harvest. Beet produces long tap root which means they are, generally, less affected by dry weather late in the growing season than grains. The probably global recession is seen likely to impact on demand but probably less on sugar than some other commodities. However, white sugar remains strong but is not giving much support to raws at the moment. With the White Premium running at a level that mean refiners can make a good margin it is likely white sugar supply will improve and prices drop back.

This morning the market opened 7 points higher on some light market-on-opening buying but immediately dropped lower before, initially, finding some support at the lows of yesterday. Currently, prices are around 6 points lower. The VH is unchanged while the HK is 2 points weaker at +68. In early London trading the VZ is unchanged at +20.60 while the ZH is a tad firmer at +9.50. The macro is mixed this morning. Crude is higher, grains/soya mixed and the USD Index is firmer. The BRL dropped to a new recent low yesterday ending at 5.50 last night. The market remains weak and further losses look likely bearing in mind prices dived to 17.71 on the 1^st of July. The premium that was seen in prices due to concerns over the prospects for the Brazilian CS crop seems to be eroding as it become more unlikely of any large surprised on the production down-side. Nevertheless, a correction could be seen at the end of the week which could be exaggerated as the liquidity becomes poorer.