Written Commentary
ADM Appoints Monish Patolawala as EVP and CFO
July 10, 2024
Written by Howard Jenkins, Head of Global Commodities
A shortened week due to the Martin Luther King holiday on Monday in the States has seen the market retreat from the 3 ½ year highs seen last week. Currently, prices are some 80 points off these highs as the aggressive fund buying has disappeared. Their appetite for agricultural commodities has probably not abated but they are getting full. While their buying of grains and the soya complex is based, in part, on bullish fundamental it is harder to argue this for sugar and might help explain the correction.
As mentioned before the rally in prices has made Indian sugar exports profitable especially with the export subsidies attached. Indian exporters have been taking full advantage of this situation and have been busy concluding sales contracts in front of the start of the next Brazilian harvest. It is estimates exports sales have reached between 1.7 and 2 million tonnes over recent weeks plugging a good percentage of the supply gaps. They are wise to do so as their current harvest is continuing apace. As of middle of January sugar production had hit 14.27 million tonnes which is nearly 24% higher than the same time last season. Total estimates are now creeping higher with analysts starting to pencil in 32-33 million tonnes. More worrying for the market is the view that even higher production will be seen in 2021/22 after two consecutive excellent monsoons. Sugar cane still offers better returns for farmers than other crops especially with the subsidies. It is estimated that plantings in Maharashtra could be 40% higher than last season which could point to truly enormous production.
Brazil is very much in between harvests with virtually all mills ceasing activities until April. Currently, there is a general view that although mills will continue to favour sugar over ethanol total production will fall next season because of cane availability. Dry weather last year which allowed the crush to continue unabated has had some negative impact despite recent good rains. Fires that broke out in cane fields due to the dry weather is also a factor. Currently, analysts are pegging total cane crop at around 580 million tonnes down around 4% resulting in total sugar production at around 36 million tonnes from just over 38 million tonnes compared with the last harvest. Of course, ethanol prices could improve considerable to encourage more diversion of cane but this would seem wishful thinking for the time being as the pandemic continues.
The Thai harvest remains poor so far. As of last week the total cane crush is running at 15.575 million tonnes down 36.5% on same time last year. Sugar production had reached 1.635 million tonnes down 37.4% year on year. Things have improved since the very slow start to the harvest but it is difficult to see production even reaching last year’s modest levels. The EU beet planting season will get into full swing before too long. It will be interesting to see how much is planted now that many countries have temporarily lifted their ban on neonicotinoid pesticides which caused so many problems last season.
This morning a sea of red has spread across virtually all markets as investor pause for thought as the economic impact of the global pandemic is put into stark figures. Sugar prices have slipped below 16 cents and are in danger of wiping out most of the gains this year. However, it is unlikely the funds will throw in the towel as most will have bought commodities as a long term play. However, it would seem unlikely sugar prices will rally back to the highs especially as the funds will need to concentrate on rolling their front month positions before too long. Attention will now turn to the March expiry and whether a large delivery will be seen and, of course, the usual debate on whether the delivery size is bullish or bearish.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Kevin Watkins, Steven Trigg
Phone: +44(0) 20 7716 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.
