Sugar Market Report for 28 October

Good morning,

The market extended its losses yesterday with a new low for the month seen with more fund selling and only limited scale down end-user buying. The market had opened 2 points firmer but was soon making new lows for the move. The morning was quiet with the market holding around unchanged. Prices did improve on some light speculative short covering early afternoon but fund selling eventually appeared taking prices through 17.80 before support found at 17.70 but the market closed at the lows. Again, the structure held despite the flat price weakness with the HK ending just 2 points weaker at +92 while the KN was 1 point firmer at +50. In London, it was more sedate with the ZH and HK virtually unchanged at +31.60 and +8.20 respectively. This meant the WP also ended around unchanged with the ZH WP at 126.80 and the HH WP at 95.20. Despite prices having dropped 125 points over the past 12 sessions, the fund selling continued yesterday albeit in relatively limited volume. It is likely they have now covered all their net longs and the shorter-term funds are running short. Prices are now back in the range seen pre the early October rally which was built on the wet weather across Brazil’s CS hampering the harvest.

There continues to be no proclamation from the Indian Government regarding their export policy for the current season. ISMA is getting frustrated with the lack of guidance. They are ramping up their argument for exports by citing higher production expected this season and healthy carry-over stocks. They estimate carry-over stocks of 5.5 million tonnes and production at 36.5 million tonnes with domestic consumption at 27.5 million tonnes. While maintaining stocks at their current levels by the beginning of October next year there is scope for around 9 million tonnes of exports. There is also a growing view that total production may exceed 36.5 million tonnes which will allow more exports. ISMA conclude that ‘…unless the Government does not promptly respond by allowing exports as an outlet for the surplus stocks the sugar sector might again be needlessly pushed into the red to the detriment of all stakeholders. This must be avoided’.

This morning the market opened 1 point firmer. Currently, the market is unchanged. The HK and KN are unchanged at +92 and +50 respectively. In early London trading, the ZH is firmer at +32.80 with MOO buying while the HK is around unchanged at +8.30. The macro is a negative picture this morning with virtually all commodities trending lower. The USD Index has improved regaining the losses of Wednesday. The BRL remains weak although slightly improved at 5.33. Sunday sees the second round of the Brazilian Presidential election which sees Lula da Silva in the lead at around 52% over Jair Bolsonaro. It will be interesting to see Bolsonaro’s reaction to a defeat as he has already stated he may not accept a Lula victory. The market remains under pressure but a correction is probably due especially as the structure remains firm. Month end may prompt some short covering but it would seem unlikely any significant rally will build.