Sugar Market Report for 26 May

Good morning,

NY sugar ended slightly lower again yesterday having found support above 19. 50 again while London sugar made further gains hitting its highest level since the middle of April. The market had opened 7 points higher before swiftly gaining another 11 points. However, this turned out to be the highs of the day as prices soon turned lower before finding support some 10 points lower. Prices held in a narrow range in quiet trading until early afternoon when further liquidation was seen which took prices down to the lows of the day with buying found below 19.55. This support eventually encouraged some day trader short covering with prices pulling off the lows and back to unchanged shortly before  the close although another late bout of speculative selling saw prices dip in late trading. The structure was little changed with the NV ending unchanged at -16 while the VH was 1 point firmer at -24. The trading volume was poor at just under 87k lots. In London it was a different story with reasonable volume as prices pushed higher ending over $7 firmer on flat price. However, the front spread was barely changed at +15.70 suggesting it was speculative buying. Nevertheless, the VZ was nearly $3 firmer at +8.90. It was also interesting to note the strength in London had little impact on NY values – perhaps that may change and certainly should mean NY remains well supported. Needless to say the WP surged higher with the VV WP hitting 110.80 and the VZ WP reaching 101.90 in good volume. The restricting of Indian exports to 10 million tonnes is, perhaps, a reason for the strength in London. NY is suffering from a lack of interest as other agricultural market see greater volatility and the funds have established their long position which they seem happy to hold but not increase.

Unica released their harvest data for the first half of May yesterday afternoon. It showed a total of 34.4 million tonnes of cane was crushed producing 1.67 million tonnes of sugar with a split of 40.77/59.23. While the crush was below expectations the amount of sugar produced was in line with estimates. Traders will note the harvest is picking up after a slow and delayed start. 232 mills are now operating which is considerably higher than the 180 in late April but a tad lower than the 236 working this time last year. Another 17 mills are expected to start operations during the second half of May. The split is still well in favour of ethanol but is narrowing compared with in April and a further correction is likely to be seen during the second half of May. It was also noted that ethanol sales data was disappointing. It was also noted that ethanol produced from corn is increasing. Production as of the 15th May is some 20% higher than at the same time last year. Analysts will be watching ethanol production against demand. Brazil is no more immune to the global economic issues than others and many maybe forced to cut down on fuel usage – a point not lost by President Bolsonaro who is keen to keep the economy as buoyant as possible with the election in October.

The Cuban sugar industry has been in seemingly terminal decline for many years. Their cane harvest has finished for the season with just 474k tonnes of sugar produced – a far cry from the 6 million tonnes produced 40-50 years ago. The total was only 52% of the Government’s goal for the season with a lack of inputs given as the main reason. With fertiliser prices rising it would seem unlikely any short term turnaround will be seen with its complete demise quite possible.

This morning the market opened 28 points lower leaving a chart gap. It would appear chatter about a cut in Brazil’s ICMS tax which would reduce ethanol parity maybe the trigger. The market is currently around 22-21 points lower. The NV is unchanged at 16 while the VH is 3 points weaker at -27. In early London trading flat prices is down although they remain relatively firm compared to NY. The QV is firmer at +16.40 while the VZ is also firmer at +9.50. The macro is mixed this morning with crude and soya higher while grains lower. The USD Index is unchanged. A surprising opening. Given the importance of Brazilian ethanol production this season it is not too surprising that any talk of lowering of gasoline prices or even dropping ethanol demand will have an impact on sugar prices. Time will tell on whether any new measures to reduce fuel prices in Brazil will translate into higher a higher sugar split remains to be seen but it may take time to filter through to the mills planning. However, it does suggest that Bolsonaro will look to lower fuel prices to keep inflation down and his hopes of being re-elected high. The N-2 chart now has a chart gap above and below the market to fill. It would seem likely the gap formed this morning will be covered first but the downside target at 19.20 is now well in view and if the funds decide to lessen their longs it could quickly be filled.




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