Sugar Market Report for 7 August

The market dropped again on Friday settling at its lowest level since the 11th July as funds cut more longs and some fresh selling noted from Brazil as the BRL weakens. However, the trading volume was, again, very limited at just over 72k lots. The market had opened 5 points firmer but immediately dropped. The decline continued throughout the morning only finding some support at around 23.60. Prices did improve as US traders got to their desks but it was only a minimal recovery and by the close prices were back to near the lows of the day. The VH slipped 2 points to -19 as was the HK which ended at +128. After the strength earlier in the week London dropped back as the structure weakened slightly with the VZ down at +10.30 and the ZH at +13.50. The WP, which had steamed to new highs on Thursday slipped back with the VV WP ending at 163.90 and the VZ WP at 153.60. With little positive fundamental news around the market continued to drop but, overall, there was limited interest with traders happy to sit on their hands.

The COT report as of the 1st August showed that the funds/specs had cut their net long position by 10,767 to 133,532. The non-commercials cut their net longs by 14,196 to 98,859 as they liquidated longs reinstated their previous week. The cut was not unexpected as prices dropping 70 points during the reporting period. Given prices have fallen further since the report date it is likely the funds have cut virtually all the longs they had bought over the previous couple of weeks. The commercials cut their net shorts by 3,122 to 318,978 with the trade on either side as end users priced and some producer selling mainly from Brazil after the BRL slid after an unexpected cut in interest rates last week. The Index funds increase their net longs by 7,644 to 185,447.

The Indian monsoon continues and seems OK after a stuttering start. The combined June and July rainfall was 5% above average after below average in June and 13% above average in July. Of course, some regions have had torrential rain while others have remained drier than normal. However, coverage seems slowly to be evening up with one week good rainfall in one regions before good rainfall in other regions which were dry the week before. Rainfall in August and September will be important for the newly planted cane. In Brazil, it remains dry which has allowed the CS crush to continue apace. Unica is likely to release their data for 2nd half July later this week which should show another hefty crush and high production.

This morning the market opened unchanged in quiet trading. However, selling soon appeared with prices currently 10 points lower. The VH is unchanged at -19 while the HK is 1 point firmer at +129. In early London trading the VH is slightly firmer at +10.60 while the ZH is unchanged at +13.50. The macro is mixed this morning with crude slightly higher while grains/soya lower apart from wheat. The USD index is firmer as the USD continues to recover while the BRL was unchanged on Friday at 4.89. The market looks weak and could fall further especially if the funds liquidate more longs. End users have more to price but appear to be in no hurry as the Brazilian CS harvest continues briskly and the rains continue to fall across Asia. There is a double bottom at 23.57/59 which looks likely to be breached, which could trigger further selling taking prices down towards 23 cents.