Sugar Market Report for 5 January

The market continued to drop yesterday ending over 160 points down from the highs hit just before Christmas. The market had opened unchanged but son started to drop soon hitting a new low for the move. Prices did improve back to opening levels by mid-day but started to fall again once US traders got to their desks. The market slowly eased lower over the rest of the session to settle just 2 points off the day’s lows as the next support level at 19.50 was tested briefly. A negative macro did not help sentiment as crude dropped over 4% during the afternoon along with other agri-commodities. The HK continued to weaken losing 7 points to end at +119 while the KN was also 4 points weaker at +63. In London, the HK dropped to +19.80 while the KQ finished at +17.00. The WP also weakened with the HH WP ending at 112.30 and the KK WP at 118.80. The large correction continues after the market rallied to its highest level since February 2017 mainly on fund buying as they built their largest net long position in several years. The market is yet to find any significant support as some funds slowly liquidate longs. Nevertheless, prices are back to level where some decent support was found in late November/early December.

In hindsight, the rally over 21 cents was overdone mainly on fund buying and limited producer selling. A tight physical market especially in raws was cited as the main reason for the huge jump in prices. Recently, bearish news has emerged. Brazilian CS production for 2022/23 is now some 1.3 million tonnes more than the previous season although it is unlikely to grow much more as the crush has, essentially, finished. Nevertheless, cane remains uncut and good rains suggest a possible early start to next season with higher production again given the planted area has increased and Brazilian government fuel policy will have mills continuing to favour sugar production over ethanol. Indian production is running some 3.7 % above same time last season suggesting earlier chatter of a total drop in production of 7% may have been exaggerated. It also may allow the government to increase their export quota with mills requesting another 3 million tonnes. The Thai harvest is also off to a good start with sugar production over 8% higher year on year. Of course, much is still just conjecture and things could change dramatically but, at the moment, the expected surplus for the season may grow to be larger than forecast. End users have been cautious and many have continued to buy hand-to-mouth and defer buying for as long as possible.

This morning the market opened 6 points higher mainly on an improved crude quote. However, the market soon slipped slightly with prices, currently, unchanged. The HK is 1 point weaker at +118 while the KN is 1 point firmer at +64. In early London trading, the HK is a tad weaker at +19.10 as is the KQ which is valued at +16.60. The macro is a slightly positive picture this morning with crude recovering slightly from the losses of yesterday. The USD index is around unchanged and remains in the narrow range seen since mid-December. The BRL remains weak ending at 5.43 yesterday. The market remains under pressure and may drop further with more fund liquidation. So far, despite the large drop in prices, the fund selling has been limited but this may increase if the market falls below 19.50. However, the structure still remains firm so they may well look to roll positions instead.