Sugar Market Report for 6 January

The market continued its fall yesterday as funds liquidated breaching the 19.50 level before finding support at the double bottom at 19.31. The market had opened 6 points firmer before improving swiftly on light market buying to post the highs of the day. However, the market soon fell back to find support at 19.50. This kept the market in a narrow 4 point range until US traders got to their desks when an initial bounce was quickly extinguished with some sell stops triggered as the 19.50 level was breached. Further losses were soon seen as prices dropped to the next support level of 19.31. This level was tested on the close but not breached. While it was another weak close there is now a triple bottom in place (19.31/32) which may be enough to stop the decline which has seen prices fall 186 points in the past 7 sessions. The HK lost another 6 points to finish at +113 while the KN dropped 1 point to +62. In London the front month sagged with the HK weakening $5.70 to finish at +14.10 while the KQ lost $1 to end at +16.00. This meant the HH WP weakened to 108.30 although the Kk WP improved slightly to 119.10. Further fund liquidation was seen yesterday as they continue to reduce their large long position. Nevertheless, the trading volume was relatively thin at 129k lots suggesting the larger funds are holding firm for the time being.

Limited fresh fundamental news around yesterday. Over the past couple of months many analysts have been cutting their production estimates and was seen as one reason for the rally to over 21 cents. Recently, it would seem production may be better than expected with India and Thailand harvest going well not to mention good prospects for the next Brazilian CS season. While analysts will probably hold off from increasing forecasts for the time being the production picture would seem likely to improve. Nevertheless, as is often the case, the funds are having the biggest influence on prices building their largest long position in two years which took prices to highest levels since 2017. Now they are lessening their longs the market has fallen. However, while the structure of front two months has weakened it still remains very firm suggesting the trade remain of the view that physical tightness remains an issue albeit relatively short term.

This morning the market opened 4 points firmer. Currently, prices are 1 point weaker. The HK and KN are unchanged at +113 and +62 respectively. In early London trading, the HK and KQ are also virtually unchanged at +14.00 and +16.00. This morning the macro is mixed with crude slightly lower while grain/soya are higher. The USD index is also slightly firmer while the BRL improved slightly yesterday to finish at 5.35. The market may try to consolidate after the swift collapse from the highs late last month. Much will depend on whether the funds liquidate more longs. Initial support is seen at 19.32/32 but if this was to be breached a further drop to 19.05/06 would seem likely. With limited selling above the market a swift correction could also be seen if the fund selling dries up.