Sugar Market Report for 26 August

Good morning,

Yesterday saw a volatile day with a 48 point range although prices still remained within the range of the previous five sessions with the gains of the previous session exactly cancelled out. The market had opened 5 points firmer  before immediately gaining another 10 points. However, resistance was soon found at 18.20 which saw the highs of the day soon in place. The market soon started to ease lower and was back to unchanged by mid-day. The slide accelerated as US traders got to their desks dropping over 30 points over the next couple of hours when the lows of the day were reached. With support noted at below 17.70 some speculative short covering was noted which saw prices swiftly pull off the lows to settle nearly 20 points off the lows. The VH was stronger again ending 7 points firmer at +12 while the HK was a couple of points lower at +59. In London it was another quiet day but the structure remains strong with the VZ settling at +31.90 and the ZH at +17.00. This meant the WP also improved with the VV WP pushing up to 153.30 and the VZ WP at 121.40. Yesterday’s weakness was hard to fathom but it may have just been a case of the market continuing to trade the range. Further deeper analysis of the Unica data for the 1^st half August also possibly suggests the harvest is progressing better than initially thought with agricultural yields better than expected in July. The view is that this time last year the harvest started to deteriorate quickly due to drought and frosts so production may start to swiftly catch up over the coming months.

The VH improved to another recent high of +12 yesterday having improved 27 points since the beginning of the month. Some trade houses are thinking the spot month could go to over a 30 point premium by expiry. They cite concerns over the progress of the Brazilian CS harvest and the lack of Indian exports. Currently, exports are effectively banned as exports have reached (and breached) the Government 10 million tonne cap. The Government has, as yet, not issued any export policy for next season. However, chatter has it that around 8 million tonnes of exports will be allowed in two tranches with the first tranche of 5 million tonnes with more after assessing the supply and price scenario. However, when any announcement is made is uncertain. Traders will remember the Indian government took an inordinate amount of time to announce their subsidy policy a couple of seasons ago and well after the start of the season.

This morning the market opened 1 point firmer on quiet trading. Currently, prices are unchanged. In early trading the VH is 1 point better at +13 while the HK is 1 point weaker at +56. In early London trading the VZ is slightly weaker at +31.20 while the ZH is firmer at +18.40. This morning the macro is slightly positive with most commodity markets trending higher while the USD Index is also firmer while the BRL ended last night unchanged at 5.11. Direction seems uncertain at the moment. The strengthening of the spot month should add some support to the flat price with support growing at 17.70 and below. However, it would seem some of the short term funds are happy to play the market from the short side so the up-side for the time being looks limited.

The London market will be closed on Monday 29^th for the August bank holiday. The NY market will, therefore, open later at 12:30 BST with normal closing time.