Written Commentary
The Ghost in the Machine Q1 2024
March 19, 2024
Written by Howard Jenkins, Head of Global Commodities
It has been déjà vu for the sugar market over the past week with prices continuing to slip lower in thin volume. The market is, currently, around 100 points off the multi-month highs hit mid-November. At the time concern over a lack of an Indian export policy was exciting the bulls as were the dry conditions in Brazil and the prospect another season of low sugar production in Thailand. While there continues to be no word from the Indian government the dry conditions are beginning to ease across Brazil’s CS with good rains recently and a forecast for more over the rest of the month. La Nina does not seem to have had an impact as yet. There has been some startling views out of Thailand that the cane crop could reach 100 million tonnes due to good rains recently. While this figure is highly unlikely to be achieved it has concentrated the minds of analysts who had pencilled in little more than 60 million tonnes a couple of months ago. As we are often reminded by one particular analyst: rule number one in sugar ‘Rain makes Cane’.
It is now widely thought that the Indian Government will not, now, make any announcement regarding their export policy until January. But as always with Indian politics one has to expect the unexpected. The later the policy is agreed the less export opportunities India will have to export sizable quantities. It was thought the aim would be similar to last season’s six million tonnes. This will now be a big ask which could mean Indian sugar stocks could be vast by the end of the season severely pressurising the domestic market. Perhaps the government is concerned about the WTO? It has been announced that, after 2 ½ years, the WTO will hear the formal complaint by Australia with backing from Brazil, about Indian subsidies. Australia say that giving these subsidies is a blatant breach of WTO rules. The formal hearing has been postponed since May due to the pandemic but, will now be heard in a few weeks’ time. However, any formal decision is unlikely to be immediate and probably will not impact on the Indian governments thinking.
So the market continues to quietly stagnate. The funds have continued to slowly unwind some of their long positions. Indeed they seem to be booking profits across the agri-commodity spectrum with grains and the other softs off their highs. However, will they buy again come the New Year? The stock market’s rally has slowed as the euphoria of the vaccine news is replaced with some reality that world will take many months to get back to some sort of normality. Nevertheless, the outlook for 2021 certainly looks a lot brighter than a couple of months ago. Sugar’s dilemma, apart from India, is that most see a small surplus in production for 2020/21. Will consumption recover to pre-Covid levels and how quickly? It would seem likely it will improve next year but probably only back to the levels of 2019. In the meantime sugar traders remain cautious as year-end rapidly approaches.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg
Phone: +44(0) 207 716 8598
Email: admisi.sugar@admisi.com
Registered in England No. 2547805 a subsidiary of Archer Daniels Midland Company. Risk Warning: Investments in Equities, CFDs, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value, investors should therefore be aware that they may not realise the initial amount invested, and indeed may incur additional liabilities. These Investments may entail above average financial risk of loss, and investors should therefore carefully consider whether their financial circumstances and investment experience permit them to invest and, if necessary, seek the advice of an independent Financial Advisor. Some services described are not available to certain customers due to regulatory constraints either in the United Kingdom or elsewhere.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2024 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
