Sugar Market Report for 24 May

Good morning,

Friday saw the market extend the losses seen earlier in the week hitting its lowest level since 19^th April on fund long liquidation meeting with limited scale down buying from end-users. The market had opened 5-6 points lower which turned out to be the highs of the day with prices remaining in the negative column for the entire session. Indeed, prices soon started to sag lower quickly breaching the lows of the previous session. Some light support at around 16.80 was enough, initially, to have prices settling into a narrow range for much of the morning but as US traders got to their desks the market came under pressure again with persistent fund selling meeting with limited scale down buying. The market hit the lows of the day mid-afternoon before some very light day-trader short covering was seen but it was soon over with prices dipping back towards the lows again and eventually settling weak. While the trading volume was better than the appalling total of the previous session it was still limited considering the size of the move at just over 104k lots. The NV weakened 4 points to -17 while the VH finished 1 points weaker at -7. In London the structure ended slightly better but still overall weak with the QV at -1.10 and the VZ at -1.40. This saw the NQ WP improve slightly to  ending at 79.90 while the VV WP finished at 78.60. The macro was negative on Friday which seem to set the tone for sugar. As described earlier in the week by traders and analysts at the ISO/Datagro conference the market appears well supplies with no near-term tightness seen. This has seen the spot month continue to weaken in NY which, in turn, has seen the flat prices under pressure as the funds continue to trim their long position which started shortly after the market hit the recent highs. The extent of the collapse has been probably rather more than anticipated given the on-going concerns over the Brazilian CS crop.

The COT as of the 18^th May showed the funds/specs had cut their net long position by 25,599 to 232,974 which is probably in line with most expectations given the market dropped 90 points during the reporting period. The non-commercials cut their net long position by 17,655 to 175,918 and have probably sold another 20k since and, therefore, are around 150 k lots net long. The commercials cut their net short position by 37,049 to 466,236 as trade covered shorts as the market dropped and end-users started to price into the decline. It is likely end-users have continued to price over the past few days probably heaving a sign of relief prices have dropped back as they were getting badly under-priced. The Index funds cut their net long position by 11,450 to 233,264.

This morning the market opened 1 point weaker before some early speculative buying saw prices quickly improve some 10 points before falling back to their current level of just above unchanged. The NV and VH are unchanged at -17 and -7 respectively while in early London trading the QV is valued slightly weaker at -1.30 while the VZ is also a tad weaker at -1.60. The macro is mixed this morning with crude higher while grains/soya are weaker. The UDS index is also slightly weaker and below 90.00 again. Sugar looks to have few friends at the moment. However, prices are approaching Brazilian ethanol parity which is estimated to be around 16.50 so, theoretically, prices should not decline much further. However, if the funds continue to liquidate position then prices are likely to weaken further. The up-side would also seem limited especially as the structure continues to remain weak and the funds are unlikely to reinstate longs for the time being. Unica should release their 1^st half May data sometime this week which will give further flavour as to how the crush is progressing.