Sugar Market Report for 29 July

Good morning,

Yesterday saw a sizeable correction in NY after the large drops in price over the previous seven sessions aided by a strong London market. NY had opened 15 points firmer before quickly gaining another 10 points in hectic trading during the first 10 minutes of the session. The market then became quieter falling back to opening levels. However, as US traders got to their desks the market start to improve further and gained another 35 points over the next couple of hours hitting the day’s highs before day-trader liquidation trimmed the gains as resistance was found as prices approached 18 cents. The market tumbled back 30 points before settling bang in the middle of the day’s range. The VH improved by 5 points to end at -12 while the HK was also 5 points firmer at +67. In London the flat price followed NY but it was the structure that saw the most improvement. The VZ jumped over $10 to end at a new high of +32.50 while the ZH was also $4 firmer at +10.10. This saw the VV WP balloon out to 140.90 while the VZ also improved to finish at 108.40. It was somewhat inevitable that a correction would be seen after prices dropped nearly 230 points over the past 10 days. While the Unica data was seen as bearish because the data for 1st half of July was better than expected the cumulative totals are still well below last season with the cane crush 9.5% lower year on year and sugar production over 17% lower. Therefore, as Unica pointed out in the report, the mills will have to continue operations longer than last season to reach a larger crush. This would also suggest that reaching last season’s sugar production of  32 million tonnes might not be possible.

Brazil’s Petrobras announced yesterday that it will cut gasoline prices by around 4% at its refineries to 3.71 BRL per litre as of today which will take prices down to their lowest level since March and is the second cut this month. This move will please President Bolsonaro who has been vocal in his determination for fuel prices to fall to help control inflation in front of the Presidential election in October. While bearish for sugar it is unlikely it will have a large impact on the sugar/ethanol split as ethanol parity has been below sugar prices for some time and it is unlikely the split will increase in favour of sugar too much from the 47% in the last Unica report which is above the average for last season now.

As expected the Indian Government is set to allow mills to export around 1 million tonnes of mostly raw sugar over and above the 10 million tonne cap. This is to allow export of stocks that had accumulated at ports and warehouses. Some will have been sold and will stop any defaults. There would appear to be more than adequate supplies and with another 35 million tonnes likely to be produced next season which will be, again, well above domestic consumption.

Reuters published the results of the latest sugar poll yesterday. The average of the 10 analysts and traders saw prices ending the year at 18.50 cents in NY and $525 per tonne in London (therefore WP at around 117). They see a global surplus of 2.81 million tonnes with Brazilian production reaching 32.3 million tonnes and Indian production at 35 million tonnes. These polls are notoriously inaccurate but it is a view of how the market is viewed currently.

This morning the market opened 9 points firmer mainly on the back of a positive macro picture and a weak USD. Currently, prices are 10 points firmer. The VH is unchanged at -12 while the HK is 2 points better at +69. In early London trading the VZ is slightly firmer at +32.60 while the ZH is valued at +11.00. The macro is a positive this morning with most commodities higher mainly on the back of a weak USD. The USD Index is down at 105.50 its lowest level since 5th July and some 3.3% off the 20 year highs reached in the middle of the month. The market looks as if it could make further gains and test the 18 cent level. The COT released tonight will confirm the size of the fund’s short position which they have, surely, built leading to the price collapse recently.  With a more positive macro picture they may decide to cover some of the position. The strength seen in London will also be supportive. Nevertheless, the probability of a production surplus next season is likely to keep a cap on the gains. However, Indian exports will be needed. While the Government are more than likely to allow exports next season prices are below Indian mills selling price at the moment. It is unlikely any subsidy programme will be given by the Indian Government.

Contact the ADMISI Sugar Desk team:

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

 A subsidiary of Archer Daniels Midland Company.

 © 2022 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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