Written Commentary
The Ghost in the Machine Q3 2023
September 19, 2023
Good morning,
Yesterday saw another inside day with prices yoyoing either side of unchanged for the day. The market had opened 6 points firmer but soon fell away and into the negative column in light volume. The market then remained within a relatively narrow 24 point range for the remainder of the session hitting the day’s lows and highs during the afternoon with the market eventually settling slightly lower on the day and in the middle of the range for the past three sessions. The VH improved 3 points to end at +5 while the HK ended 1 point firmer at +61. In London it was quiet again with the VZ finishing slightly lower at +32.80 while the ZH slightly firmer at +14.10. The WP improved again with the VV WP finishing at 155.40 and the VZ at 122.60. Despite an improving macro picture throughout the day with crude and grains/soya higher and the USD Index dropping back after hitting fresh 20 year highs sugar remained range-bound with limited interest. The trading volume was, again, poor failing to breach 75k lots.
Unica will release their harvest data for the CS at 15:00 (London time) today. It is expected to show a strong crush number of around 48 million tonnes with a strong sugar/ethanol split as mills concentrate on sugar production. This should mean sugar production around 3.4 million tonnes but much will depend on the ATR which was at 148 during the second half of July. Therefore, it is likely sugar production will still be around 2 million tonnes less than last season at the same time. However, this was the stage last year’s cane began to suffer from the excessive drought and frosts so over the coming weeks the gap should begin to narrow. With ethanol parity well below current prices mills will continue to concentrate on sugar but it will need a long tail to allow production to beat last year’s 32 million tonnes and enough cane.
This morning the market opened 4 points firmer. Currently, the market is 5 points firmer. The VH is unchanged at +5 while the HK is 1 point firmer at +62. In early London trading the structure continues to improve with the VZ at +33.50 and the ZH a tad firmer at +14.30. Yesterday, the macro saw a good improvement across the board as China reported drought conditions could have a serious impact on their autumn crops and the drought across the EU is quoted to be the worst for 500 years. This morning the macro is mixed with crude barely changed while grains/soya are firmer and metals weaker. The USD index is unchanged after falling from 20 year highs yesterday. Sugar appears to be rather directionless at the moment happy to hold around the 18 cent level. The funds are quiet having covered around half their net short position. Producer selling is above the market while end-users are comfortably covered after prices dropped to their lowest level in 2 year at the end of July.
Unica may shake up the market later today but it would seem unlikely a major reaction will be seen. Nevertheless, for the time being the down-side looks limited and a push higher is the more likely outcome. Improving commodity prices across the board and the strong white sugar market may trigger the funds into covering further shorts.
Contact the ADMISI Sugar Desk team:
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
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