Sugar Market Report for 26 September

Good morning,

The macro impacted more than anything else on Friday as virtually all commodities dropped as the USD surged. The USD Index hit its highest level since May 2002 as investors rushed to safe havens. Sugar was caught between the macro and the nearby physical tightness with the flat price dropping while the spot month strengthened against the rest of the board. The market had opened 3 points lower before immediately dropping another 13 points. Prices did then manage a small improvement pulled up to a certain extent by the strengthening of the VH. However, as the macro picture worsened prices came under renewed pressure and as US traders got to their desks prices dropped through the previous two sessions lows as the funds sold. The market reached the lows of the day late afternoon before some short covering was seen which bolstered prices to a certain extent which, eventually, saw prices end well off the lows but still the lowest close in four sessions. However, in contrast to the flat price the V-22 improved against the rest of the board with the VH burgeoning out to just over +70 at one point before falling back to end at +64. Some longs seem happy to squeeze the shorts in covering. The OI as of COB 22nd September was 74,966 lots with a large 52,024 lots traded on Friday. Whether this has a marked impact on the OI remains to be seen but it is unlikely the longs will cash in yet. In London it was particularly quiet given the macro turmoil. The ZH improved to end at +35.40 while the HK was unchanged at +10.50. This meant the WP improved with the ZH ending at 143.70 while the HH WP was at 108.40. The macro’s weakness was the main factor impacting on prices Friday as a global slowdown is seen as denting demand. However, short term physical tightness for both raw and white sugar is keeping both market in contango. However, most see adequate supplies by second quarter next year as the market see a global surplus in production.

The COT, as of the 20th September, saw the funds/specs increase their net short position by 35,151 to 40,830. This increase was expected as prices dropped from 18.38 to a low of 17.50 during the reporting period. The non-commercials increased their net shorts by 21,984 to 39,516. Given the volatility of the market since the report date it is likely the funds have increased their net shorts slightly. The commercials cut their net short position by 19,026 to 154,853 as the trade covered shorts as the market dropped with limited evidence of any serious end-buyer pricing. They are, probably,  now looking for prices below 17.50. The index funds increased their net longs by 16,125 to 195,683 as they covered short perhaps a consequence of the V-22 option expiry.

More rain is forecast across Brazil’s CS for this week but a drier picture is seen by the weekend. The rain will continue to hamper field operations in the short term but must be seen as beneficial for the remaining cane to be crushed and for the prospects for the next harvest.

This morning opened unchanged but soon dropped away only to bounce back quickly as the spot month improved. Currently, prices are 3 points firmer. The VH is 5 points firmer this morning at +69 while the HK is 1 point lower at +61. In early London trading it is a quiet start with the ZH and HK valued around unchanged at +35.50 and +10.50 respectively. The macro remains a negative picture with a definite risk-off attitude being taken by investors. The USD Index continues to strengthen having hit its highest level since April 2002 in earlier trading. Virtually all commodities markets are lower again today as crude WTI drops to its lowest level since January. The sugar market continues to be pulled by near-by physical tightness and the negativity of the macro and the likelihood of improving supply. The market also await Indian Government pronouncement on the export policy for next season.