Sugar Market Report for 31 October

Good morning,

The market dropped again on Friday extending the drop from the highs on the 12th October to nearly 140 points. However, the structure continues to hold firm with the spot moth premium higher than when the flat price was near 19 cents. The market opened 1 point firmer falling almost immediately to leave the highs of the day in place as prices gradually dropped further. Some support was seen at 17.65 but that was soon breached as US traders got to their desks. Further fund selling noted during the latter part of the session ensured prices settled near the lows of the day although during the post-settlement period gained 5 points on some late speculative short covering. The HK improved by 1 point to finish at +93 while the KN ended 4 point lower at +46. In London, both the ZH and HK settled slightly lower on the day at +31.10 and +8.00 respectively. However, the WP improved with the ZH ending $1 firmer at 128.00 while the HH WP ended at 96.90. It was another disappointing day for the bulls as the market dropped to its lowest settlement since the 3rd of October and down at the bottom end of the range seen during August and September and under 40 points from the one year low reached in late September. The fund selling appears to be the main driver of the drop in the flat price although end-users buying is growing as the price falls.

The Indian Government has confirmed that they will continue to restrict exports through to the end of the current season. However, this does not mean there will be no exports allowed merely that they will continue to control the amount of exports. A decision as to how much exports will be allowed is expected sometime this week. Nevertheless, this announcement will be seen as a warning that the Government will not allow exports to have a negative impact on domestic prices. What quantity of exports will be allowed remains to be seen. Most had expected 5 million tonnes but this announcement may suggest a more cautious approach may be taken. However, the Government will be aware that the mills have a limited window of opportunities for exports before they have to compete with Thai and Brazilian exports.

The COT report as of the 25th October showed that the funds/specs had cut their net longs by 21,663 to 55,552. This drop was, probably, expected as prices dropped during the period by 60 points. The non-commercials cut their net longs by 11,714 to 27,892. Since the report date prices have fallen another 55 points so it is reasonable to assume the funds are near flat at the moment with some of the short term funds net short. The commercials cut their net shorts by 24,563 to 248,651 as end-users priced into the declining market. They will have priced more since the report so are not under much pressure to price more. This is considerably smaller net short position compared with the last two years although in 2019 the commercials were net long. The Index funds cut their net long position by 2,901 to 193,098.

This morning the market opened 12 points firmer before improving further. Currently, prices are some 17 points higher. The HK is 2 points firmer at +95 while the KN is 3 points firmer at +49. In early London trading, the ZH is firmer at +32.70 as is the HK at +9.40. The macro mixed with crude and metals lower while grains are firmer mainly due to Russia’s announcement that it is suspending its involvement in the deal that allows Ukraine to export grains from its Black Sea ports although some shipments have left port over the past 24 hours. The USD Index is firmer after hitting its lowest level since September last week. In Brazil, Lula da Silva won the Brazilian Presidential election by the slimmest of margins changing the politics of the country from Right to Left. However, Congress will remain pro-Bolsonaro which will stifle Lula’s ability to get his policies approved. The BRL ended at 5.30 on Friday and is likely to be volatile today. Sugar may try to find some floor to the recent drop. There are some question marks over the Indian Government’s export policy so traders will be cautious until an official announcement is made. The continuing strength of the spot month against the rest of the board is also likely to be supportive. As usual, much will depend on the funds. They are probably a tad net short at the moment but it would seem unlikely the larger funds will build a short position at current levels.