Sugar Market Report for 7 February

Yesterday saw prices dive as funds exited longs, the structure continued to weaken and the Index fund roll got into top gear. The market had opened 1 point firmer and did improve marginally over the next couple of hours but once the buying dried up more aggressive selling appeared growing in volume as the previous day’s low was breached. The market continued to weaken throughout the afternoon breaking through the 21 cent level to eventually find support at 20.60. However, there was a minimal recovery with the market settling near the lows. The HK lost 9 points to end at +116 some 28 points off the triple high at +144. The KN lost 10 points to finish at +61 again over 30 points off the double top at +93. The NV also dropped to +7 losing 27 points over the past 4 sessions. The trading volume was excellent at nearly 298k lots although 70% was spreads. In London the HK managed to stabilise after the traumatic sell-off on Friday gaining $1.60 to end at -2.40. The KQ improved $2 to end at +14.50. This meant the WP also improved with the HH WP ending at 94.10 and the KK WP at 122.10. The market inability to build again late last week weighed on the market although the weakening of the structure may have been more telling. While there was limited scale up selling when prices rallied it was the case of thin buying as the market fell back.

No fresh fundamental news to explain the recent sell-off although a correction was always likely after the market had become, technically, over-bought. However, the weakening of the structure does point to a more bearish view of the market. ISMA’s assertion that India will see a drop in production to 34 million tonnes has met with some scepticism especially as production year-on-year is running at 6% above last season. Many analysts are still of the view that total production will be not too far from last season’s 36 million tonnes. In Brazil the CS cane crop is in excellent condition and seems to have fully recovered from the drought that hit in 2021. Frequent episodes of rain over the next 10 days will keep soil moisture levels at very good levels. The Thai harvest is now around 50% completed. Analysts still have a wide opinion on the amount of cane (96-107 million tonnes) which could produce between 11-12 million tonnes of sugar up from 10 million tonnes last season and possibly over 4 million tonnes more than the very poor 2020/21 season which was hit by drought.

This morning the market opened 12 points firmer on some good market on opening buying. However, this was sold into and prices immediately dropped back 14 points into the negative column in the first few seconds of the session. Currently prices are 4 points firmer. The HK is 2 points weaker at +114 while the KN while the KN is unchanged at +61. In early London trading the HK and KQ are valued around unchanged at -2.40 and +14.50. The macro is positive picture this morning with crude firmer while grains/soya are mixed while the USD Index is a tad firmer and some 2.75% off the multi-month lows hit last week. This impacted on the BRL which ended at 5.17 last night. The market has seen a large flat price correction so an improvement could be seen today. However, any rally back to last week’s highs would seem unlikely and a resumption of the selling may be seen in time. London’s spot month remains weak. The H-23 OI dropped to 18,937 with another 9,567 lots traded yesterday. With 8 trading sessions to go before expiry it looks as deliveries will be relatively small.