Sugar Market Report for 9 November

The market improved again yesterday hitting its highest level since 19th July as funds added new longs and producer selling was largely absent. The market had opened a couple of points firmer but soon dropped hitting the lows of the day shortly after the opening. Thereon in, prices improved slowly but steadily throughout the rest of the session breaking above 19 cents on the close to settle just off the day’s highs to settle at a three month high. However, the structure was barely changed but remains firm with the HK ending 2 points weaker at +94 while the KN was 1 point lower at +57. In London, the ZH weakened marginally to +19.90 while the HK was virtually unchanged at +7.00. With 5 sessions before the Z-22 expiry, the OI dropped to 22,147 lots as of COB 7th November with another 7,708 lots traded yesterday. The OI is relatively high with a week until expiry suggesting around 500k tonnes may be delivered. With export quotas in place, Indian sugar may appear in the tape – with larger volumes likely to become more commonplace over the coming expiries. The WP ended virtually unchanged with ZH WP at 118.40 and HH WP at 98.50. There is no one particular factor to explain the recent strength in the market. Some will argue the market’s late October collapse was over done with fund buying the main driving force for the 145 point improvement over the past seven sessions. There are still concerns that production across Brazil’s CS will not match expectations while Brazilian fuel policy may change in favour of ethanol once President Lula takes office. Finally, seasonality-wise sugar often improves in the last couple of months of the year but this does not take fully into consideration the large jump in Indian production and exports over the last few years.

Unica should release their harvest data for the second half October by the end of the week. An S&P Global poll sees sugar production for the period at 1.88 million tonnes which would be nearly 120% higher than the same period last season. Crush is seen at around 30 million tonnes from a 47/53 split. It is also estimated that 2.6 days have been lost to rain. Recently, the weather has remained dry so the first half November crush and production may also be good and allow total production to catch up with last season. The prospects for the 2023/24 cane crop continue to look good with most expecting total production to breach 35 million tonnes.

This morning the market opened 5 points lower before falling further. Currently, the market is 10 points lower.
The HK is 1 point firmer at +95 while the KN is 1 point weaker at +56. In early London trading, the ZH and Hk are both a tad former at +20.50 and +7.20 respectively. The macro is fairly benign this morning with USD Index barely changed with most commodities mixed. It is likely that more selling will appear at 19 cents and above but if the funds continue to add to longs then the market could improve further. However, it may be time for a small pull-back in the short term, the extent dictated by the macro.