Weekly Sugar Wrap
Written by Howard Jenkins, Head of Global Commodities, ADM Investor Services International Limited
The week has seen President Trump recover from Covid and sugar survive the ensuing macro sell-off. Prices have seen a determined push higher with NY gaining nearly 70 points primarily on fund buying meeting with thin scale up selling. Current prices are not that far below pre-Covid levels when chatter of 15 cents and above were being bravely predicted.
The record delivery against the October contract is now a distant memory as traders and analysts predict Brazilian sugar production during September could nudge over 6 million tonnes putting some perspective on the 2.58 million tonnes delivered. Total Brazilian production looks set to reach a record this season at over 37 million tonnes. However, will the current dry weather, which has allowed the crush to remain in top gear for weeks, compromise the next crop? This week the word drought was used for the first time which might be a bit extreme when it is traditionally dry during the Brazilian winter. Rain is forecast for next week across the cane regions but does not seem to have concerned fund managers as yet. The trade are taking a wait and see attitude.
Several analysts are now predicting a production deficit for the current season bravely predicting global consumption will recover back to their pre-Covid levels. They cite lower production in Thailand, EU and Russia. Lower Thai production has been in the market for some time and the EU production drop looks minimal. Eyes now turn to the up-coming Indian harvest. The cane has been blessed with ideal weather with two consecutive years of above average monsoon rains (first time in 60 years). Production estimates continue to grow with one respected Indian sugar expert seeing 33.5 million tonnes. If this turns out to be the case then some analysts might struggle to find a production deficit. It is also often the case that Indian production turns out the be rather higher than pre-harvest predictions.
Having broken above 14 cents will prices continue to power higher? The funds, who have been the main driver of the rally, could be around 190k lots net long. Historically, this is not huge ( just over 4 years ago they hit 291k lots) but, in these uncertain times, perhaps enough and the rally may stall. However, while Brazil remains dry prices are likely to remain firm.
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.
© 2021 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.