Sugar Market Report for 26 July

Good morning,

The market dived again yesterday to its lowest level in just over a year (1^st month cont.) having dropped 215 points in just 6 sessions. The market had opened 3 points lower then remained within a very narrow 7 point range for much of the morning although did drop through the previous sessions low. However, at mid-day prices started to slip again and spent the rest of the session weakening culminating in hitting the lows of the day on the close. The VH finished just 2 points weaker at -19. Despite the flat prices dropping over 200 points since the 18^th July the front spread has lost just 7 points. The HK did slip 5 points to end at +59 which is 20 points weaker. In London the structure also held firm with the VZ virtually unchanged at +21.30 and the ZH at +7.20. The WP did end weaker but still strong. The VV WP finished at 127.00 and the VZ at 105.70. The market appears to have few friends at the moment and not solely because of recession fears. The macro was relatively positive yesterday but had no impact on sugar. The main fundamental factor would appear to be a growing view that next season will see a surplus in production over demand. The price premium seen over the last few month due to concerns over Brazilian CS production is being lifted as energy and fuel prices ease making sugar much more attractive to produce than ethanol. However, there still remains some concerns over the cane availability and the ATR so there could still be some issue arise over the coming months.

One area of concern regarding a weather issue is the EU where the beet crop has come under pressure due to hot and dry weather recently. MARS issued a report yesterday in which they cut their forecast for sugar beet yields from 78.10 tonnes per hectare to 77.4 tonnes per hectare. This is only less than 1% drop from their last estimate. At this stage of the beet’s development, the tap root is deeper than most other crops so is less prone to draught. Much will depend on the weather over the coming weeks but it is unlikely the beet will be hit as hard as for wheat, barley and maize.

This morning, somewhat unsurprisingly, the market opened 11 points firmer and then immediately jumped another 20 points over the next 5 minutes. Currently, prices are 27 points firmer. The VH is 2 points better at -17 while the HK is 3 points better at +72. In early trading in London both the VZ and ZH are a tad weaker at +21.10 and +7.00 respectively. This morning the macro is a positive picture with energy, grains/soya firmer while the USD index is a tad lower. The BRL also improved yesterday ending at 5.37 last night. The market was over-due a corrective bounce as it was getting, technically, over-sold. How much of a bounce is seen remains to be seen but, it is likely, there will be precious little resting selling above the market. It is too early to suggest the lows are in place for the time being but, unless the macro turns seriously negative it would seem unlikely prices will test lows today. The up-side target would be 18 cents which could quickly be reached if the short covering become more intense. However, any significant recovery would seem unlikely.