Weekly Sugar Wrap
Written by Howard Jenkins, Head of Global Commodities
It has been another disappointing week in sugar with daily volumes averaging less than 85k lots per day which is surely some sort of undesirable record. This all despite the Indian Government’s long awaited pronouncement of their export policy for the current season. Prices dipped on Monday to their lowest level in six weeks as the funds continued to slowly cut their longs. This caused a technical double bottom to form at 14.09 which was, obviously, seen by some as a short term low as prices have bounced some 60 points since. However, the market remains rangebound with prices, currently, bang in the middle of the range seen since 12th October when prices started to rally on lack of Indian news and dry weather concerns in brazil.
After the interminable wait the India cabinet announced on Wednesday that they would help their sugar industry with a subsidy of Rs 6,000 per tonnes to help shift up to six million tonnes of sugar. Analysts immediately reached for their calculators to conclude that white sugar exports could be profitable at current market levels while raw sugar exports would only become viable if the market rallied back to the November highs. However, the news was greeted with barely a flicker of interest from the market. Perhaps the subsidy was already priced into the market. The need for subsidies had been debated to death over the past 3 months and, perhaps, too much emphasis was put on their importance. When the market rallied to its highest level since March it was on concerns of no Indian subsidy at all and, also, concerns over the very dry weather across Brazil’s CS that was threatening to cause major issues to the cane. Since then the rains have arrived and the situation is swiftly improving. Unica still warn that the cane crop will have suffered some irreparable damage but that maybe more an attempt to talk prices higher than said with any conviction. Obviously, the rain needs to continue over the next 3-4 months and with La Nina lurking nothing is certain. The Indian sellers have, undoubtable missed out on export opportunities as their government dallied and that maybe the issue. Buyers have made alternative arrangements or deferred purchases for later. After all, the pandemic is still likely to be having an impact on demand.
So looking back on an unprecedented year in so many ways most traders (and brokers) just want to see the back of 2020. The irony is that the year started so well with prices rallying to their highest level since late May 2017 as a large production deficit was widely predicted. The spread of Covid across the world then changed everything. The expected deficit predictions started to shrink as Brazil cranked up production and consumption dropped. Expectations now are for a balanced market at best for the current season. The world now prays next year is, surely, better. While we wait for mass vaccination to rid us of the virus things will remain tough and uncertain. The global economic damage the pandemic has cause is still to be fully comprehended. However, many are bullish of commodities as the world slowly rebuild post-Covid. Sugar, will perhaps, need some of this optimism to see prices significant improve but if Brazil reverts back to using a large percentage of the cane for ethanol and the weather causes issues then who knows what might happen next year.
This will be the last ‘Sugar Wrap’ until January so the sugar team at ADM ISI would like to wish everyone “Happy Holidays and a very Healthy New Year”.
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