Weekly Sugar Wrap for 13 May 2022

Over the past three weeks the market has collapsed over 130 points hitting its lowest level yesterday in NY since early March and are, currently, some 170 points off the five month highs reached in the middle of April. We had questioned whether prices should be just shy of 20 cents when a small global production surplus is predicted for the current season and next. The market had rallied to 20.50 as the BRL improved to its strongest level against the USD since March 2020 and crude prices rocketed on the Russian/Ukraine war. This prompted analysts and traders to predict a large shift from sugar to ethanol production across Brazil’s CS which would see total sugar production fall to below last season’s 32 million tonnes. Since then crude has fallen, the BRL has weakened and most analysts see the sugar/ethanol split similar to last season’s 45/55. Add in a surging USD and a distinct risk-off attitude from the investment fraternity with the funds having liquidated all the longs added in early April and it is not too surprising prices have dropped.

The Brazilian CS cane crush has got off to a slow start since the beginning of April which was expected as mills allow the cane as much time to recover from the months of drought last year. Unica released their bi-weekly harvest report earlier this week confirming this sluggish start. By the end of April the cane crush was running 36% lower year on year while sugar production was a big 50.6% down on same period last year. The sugar/ethanol split had reached 37.2/62.8 by the end of the month and the early ATR was down nearly 9%. However, firstly, the early weeks of harvest usually favours ethanol production and secondly, last year the ATR was high due to the dry conditions. It is likely an unhealthy obsession with the cane split will develop from now on with analysts poring over every Unica report trying to glean a total production figure. Louis Dreyfus have already made a bold prediction that total sugar production will only reach 29 million tonnes down 3 million tonnes from last season’s meagre total and nearly 10 million tonnes down from the record production of 2020/21. Most other analysts appear to be a little more optimistic with a view that production will be a tad over last year’s 32 million tonnes. However, predictions are being lowered and who is to say that LD will not turn out to be correct? The gathering of traders in NY earlier this week for the annual dinner helped stir up the bullish sentiment although, interestingly, the Brazilians were seen to be more bearish on the market.

The Thai harvest is now officially over with the last mills finishing operations last week. A total of 92.07 million tonnes of cane were crushed producing 10.13 million tonnes of sugar an increase of over 25% on last season’s miserable total. Analysts are now pencilling in a cane crop of over 100 million tonnes for next season with sugar production perhaps reaching 13 million tonnes as planted area increases and the weather remains beneficial to cane development.

India production has been the great surprise this season. Pre-harvest most had thought 31 million tonnes of sugar was a possibility. No one had expected production to be over 35 million tonnes and possibly even 36 million tonnes as the crush stretches into June. With domestic consumption at 27 million tonnes at best it would seem likely that 9 million tonnes of exports maybe booked by the end of the season without a subsidy in sight. Also it should be remembered that 3-4 million tonnes of these exports were from the previous season’s stocks. Analysts, keen not to be caught out again, are already predicting another 35 million tonne production for 2022/23 with one predicting a staggering 36.5 million tonnes.

Elsewhere production is not expected to deviate too much from this season with EU and US production down while Chinese production is seen up. Therefore, currently, most analysts although, presumably, not Louis Dreyfus are predicting a small global surplus next season to go with the small surplus of this season. Demand is, always, more tricky to predict with the pandemic and war making it all the more difficult. Suffices to say a small global increase in consumption is expected but well below the linear and historic 2%. Whether another global surplus is seen probably hinges on Brazil and India. The wider macro will also continue to have a considerable influence especially the USD ( and BRL) and crude prices. Many are fearful that the monetary tightening by Central banks will cause some serious economic damage to the world’s largest economies as they fight inflation. The on-going Russian/Ukraine war looks set to continue for the foreseeable future which will cause further global problems.

Sugar prices have now fallen back to a level which, it could be argued, is a fair reflection of current fundamentals with a premium built in for the unexpected in Brazil. The two month low reached yesterday may be in place for, at least, the short term assuming no huge deterioration in the macro. The funds have cut longs and are probably happy to now hold their remaining purchases. Producers are well priced and end-users have taken advantage of the recent drop below 19 cents to price. Therefore, perhaps the market see a period of consolidation between 18.50 and 19.50?

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, and Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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.

© 2022 ADM Investor Services International Limited.

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.

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