Sugar Market Report for 6 July
NY sugar dropped again yesterday hitting its lowest level since 1st March thereby forming a double bottom at 17.71/70 (1st month cont. chart). The market had opened 13 points firmer and pushed higher in early trading on the back of higher crude quote and strong London market the previous session when NY sugar was closed. However, as crude prices started to ease and other commodity markets weaken further prices started to slid. Some support was found just above 18.00 cents but by early afternoon the level had been breached which appeared to trigger further fund selling although no large sell-stops triggered. The market continued to drop to the lows of the day reached just in front of settlement. Speculative profit taking appeared late in the session to pull the market off the lows but it was the lowest settlement since late February. A of short covering was noted post-settlement which saw prices jump 8 points. The speculative nature of the move was reflected in the structure which barely moved with VH improving 2 points to -27 while the HK was also 1 point firmer at +51. In London it was a busy day with the QV maintaining it strength ending at +21.80 while the VZ was slightly weaker at +19.70. This meant the VV WP improved to 133.80 while the VZ was around unchanged at 114.10 but limited interest. The overriding reason for the collapse over the past two sessions is the deterioration in the macro due to concerns the world’s major economies will see a recession building over the coming months which has seen virtually all commodities seeing heavy losses over the past few days.
As mentioned the looming fears over a global recession due to the pandemic and the Russian/Ukraine war have hit not only the equity markets but also commodities. Yesterday saw crude drop over 9% with grains/soya also being heavily hit. The USD index hit its highest level since December 2002. Being a USD commodity sugar has dropped although not as much as some of other agri-commodity markets. The BRL has dropped ending at 5.39 yesterday as the USD’s strength took its toll although concerns over increasing interest rates also added to the sell-off. The over-riding concern from a fundamental side has been Brazil’s sugar production. As crude, ethanol and the BRL drop it has become increasingly profitable to produce sugar. Attention now turns to how much cane will be crushed. Limited rainfall is expected over the next 10 days (although it is usually dry at the time of the year) so analysts are likely to be keeping their estimates unchanged for the time being.
This morning the market opened 10 points firmer before improving another 5 points. Prices have eased back and are, currently, 6-7 points firmer. The VH is 1 point firmer at -26 while the HK is 2 points stronger at +53. In early London trading the QV and VZ are slightly firmer at +22.10 and 20.10 respectively. The macro is mixed this morning after the weakness of the past two trading days. Grains/Soya are weaker again while crude is slightly firmer but still well down compared with this time yesterday. The funds have been liquidating positions and are now short in some including sugar. It has been a brutal couple of days across the commodity board with the funds unlikely to turn to buyers in the short term although grains and the soya complex are now getting over-sold so some correction maybe seen. With still some serious doubts about Brazil’s production prospects sugar should find some support at current levels but will be susceptible to the macro regardless of the fundamentals. The next question is to try to determine that if the global recession bites how much will this impact on sugar demand. On the plus side freight rates look likely to weaken further and export restrictions and bans are likely to remain in place. It will be several months before a clearer demand picture emerges.
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