Sugar Market Report for 26 June

The market made another leg lower on Friday extending the losses to just over 2 cents in three sessions. The market had opened 3 points firmer but immediately dropped 24 points in the first 5 minutes of the day. There was a partial recovery before more selling appeared but prices never got back into the plus column with concentrated selling battering the market over the last quarter of the session with the market settling near the lows and at a two month low. However, a sharp jump was seen during the post-settlement period with prices improving 25 points. The NV continued to weaken to a large discount ending at -11. The VH also weakened to settle at par. In London it was a similar story with the front spread remaining weak. Although remaining virtually within the range of the previous day it closed at the lows at -7.20. The VZ did remain in the previous day’s range ending at +1.10. This meant the VV WP finished at 129.00 and the VZ WP at 127.90. There still appears to be no standout reason for the recent slump in prices. However, the Brazilian CS harvest is progressing well and with dry weather predicted for, at least, the next 10 days it will continue.

The COT report as of the 20th June showed that the funds/specs increased their net long position by 14,718 to 208,117. This increase was to be expected given prices jumped over 130 points during the reporting period. The non-commercials increased their net longs by 11,258 to 158,258 as the longs liquidated at the beginning of the month were re-established. The commercial increased their net shorts by 35,478 as both gross longs and shorts cut positions but it would appear the trade liquidated longs as prices pushed towards multi-year highs. Of course, the situation has changed considerably in the meantime as heavy fund liquidation has been seen over the past three sessions. The Index funds increased their net longs by 20,760 to 155,196 with gross shorts being covered in front of the spot month option expiry.

The Mexican cane harvest has finished early due to drought. Production has fallen by over 15% to 5.22 million tonnes compared with 6.164 million tonnes the previous season. Farmers will be hoping for better rainfall which could see production jump back to above 6 million tonnes in 2023/24.

This morning the market opened 26 points firmer (basis second month) on good market on opening buying. However, prices soon slipped back and, are currently, 14 points stronger. The NV is 13 points firmer at +2 while the VH is 2 firmer at +2. In early London trading the QV is weaker at -7.70 while the VZ is also weaker at +0.40. This morning the macro is a more positive picture with most commodities trending higher and the USD Index lower. The BRL ended around unchanged on Friday at 4.78. The losses of the last three sessions did not seem to be on any particular fundamental factor and seems to have been triggered by the weakening of the front spreads in both NY and London. The funds have been holding longs for some time and perhaps decided to lessen their position as they have done in other agricultural markets. Whether they have finished their selling remains to be seen. This morning’s early bounce may well soon dissolve but, given the concerns over the weather and, in particular, El Nino it would seem unlikely prices will continue to fall and Friday’s lows may be in place for a while.