Weekly Sugar Wrap
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.
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