Sugar Market Report for 25 October

Good morning,

The market dropped again yesterday with a limited recovery that saw the lowest settlement since 5th October. The market was on the back foot right from the opening as it opened 6 points lower before dropping another 11 points to a new low for the move. Some support noted just above 18.20 which saw some light short covering. As US traders got to their desks prices eased again this time breaking below 18.20. Again some fresh buying buoyed prices which rallied to just shy of unchanged before more concentrated selling took prices lower with the market hitting the lows of the day late in the session with the market settling just 2 points off the lows. It would seem the later selling was fund liquidation as the structure held relatively firm with the HK ending 3 points firmer at +93 while the KN gained 2 points to finish at +45. In London, the weakening of the spot month continued after the small gains of Friday. The ZH slipped to +31.20 while the HK was also slightly weaker at +8.50. This meant the WP also slipped back with the ZH WP ending at 126.50 and the HH WP at 95.30. It was another relatively quiet session when the market remained in the negative column all day. The market is now some 80 points off the highs hit a fortnight ago as the funds start to cut the longs they bought during the run up at the beginning of the London Sugar week. There has been limited end-user buying but very much on a scale-down basis. So while the structure remains firm there has been limited end-user buying.

Today Unica will release their 1st half of October CS harvest data. After a disappointing 2nd half of September when field operations were severely disrupted by heavy rain it is expected the crush and production should improve although there were still periods of rain which will have continued to hamper the crush. This time last year the data showed the extent of the extended drought and frost damage. Just 19.7 million tonnes of cane were crushed producing 1.15 million tonnes of sugar with a 39/61 split. While the split is expected to be considerably better traders will be looking to see whether the total production is making any inroads in catching up with last year’s total of 32 million tonnes. Currently, most analysts still see the total surpassing this total but not by much. The S&P survey sees the cane crush at 29.93 million tonnes producing 1.946 million tonnes from a 46/54 split. However, the ATR is expected to be lower at 148.3 as a consequence of the recent rains.

This morning the market opened 3 points firmer in thin volume. Currently, prices are unchanged. The HK and KN are both 1 point weaker at +92 and +44 respectively. In early London trading, the ZH is weaker at +30.70 while the HK is a tad firmer at +8.70. The macro is a fairly benign picture this morning with most markets barely changed. The USD Index is a tad higher while the BRL dropped 2.76% yesterday to 5.30. The currency is likely to remain volatile in front of the second round of the Presidential election on Sunday when either Jair Bolsonaro or Lula da Silva will become President. The latest poll suggests Lula is on course for victory with over 50% of the vote but it remains tight. There are also some concerns that Bolsonaro will not accept a result if he does not win so political turbulence may continue after Sunday. The market looks weak after yesterday’s poor performance. Unica may surprise but it is unlikely it will cause the funds to buy in the short term. Support seen at 18.00 cents but the upside looks limited unless Unica surprises. The Indian government is expected to release details of their export policy for the season this week – but that has been the case for many weeks.