Sugar Market Report for 9 June

The market rocketed higher yesterday as, apparently, the confirmation of El Nino developing spooked the shorts and encouraged the longs. The market had opened 1 point lower but soon started to improve making good gains throughout the rest of the session with a couple of buy stops triggered as the highs of the previous session were breached. Excellent on close buying was seen suggesting some funds were re-instating longs sold over the past fortnight. The market improved another 20 points during the post-settlement period to end at its highest level since the 30th May. The structure improved as the NV surged 13 points to end at +39 while the VH jumped 7 points to finish at +21. It was a similar situation in London with the weakness seen earlier in the week a distant memory. The QV improved to +7.30 while the VZ was also firmer at +8.20. The VV WP improved slightly to end at 128.40 while the VZ WP finished lower at 120.20. The view that El Nino was the cause of the rally seems a bit far-fetched given the news of it developing has been in the market for a couple of months. The market was already higher before the US forecaster CPC announced their update but it did appear to trigger some significant short covering and, perhaps, some end-user pricing panicked into buying as prices rallied strongly off the lows. The final trading volume was exceptionally high at just under 350k lots boosted by the on-going fund roll with spread trading at 74% of the total.

The US Climate Prediction Center reported yesterday that El Nino has emerged and is likely to continue to strengthen into the Northern Hemisphere winter. At its peak, the chances of a strong El Nino are unchanged from their last prediction in May when they put the chances at 56% between November and January and an 84% chance of exceeding moderate strength. As traders are all well aware El Nino conditions can cause dry weather in Asia and wet weather in South America. Therefore, it could impact on the Indian and Thai monsoon and the Brazilian CS harvest. However, it seems unlikely to develop sufficiently to have any major impact on the Indian monsoon which will be over well before the winter. Nevertheless, it could impact on the latter stages of the Brazilian CS cane crush with rain curtailing field operations similar to last season. Indeed some rain is forecast over the next few days which may have an impact. Of course, El Nino could last well into next year and may even impact on the 2024 monsoon.

This morning the market opened 22 points firmer and around the last traded prices yesterday. Currently, prices are trading 28 points higher. The NV is 1 point weaker while the VH is unchanged. In early London trading the QV and VZ are both around unchanged at +7.30 and +8.20 respectively. This morning the macro is mixed with crude still down after its significant drop yesterday, softs mostly higher and grains/soya mixed. The USD Index is firmer and the BRL ended unchanged yesterday (Brazilian holiday) at 4.92. The market looks strong and likely to improve further. Much of the strength appears to be based on weather concerns which have not materialised as yet. Potential receivers of the N-23 are looking to squeeze out caught shorts and with very limited selling above the market the flat price and front spread are likely to strengthen.