It has been another exceptionally volatile week in sugar with prices surging 75 points to new contract highs for July and the highest level since February 25th on general fund buying across the commodity spectrum and increasing concerns over the Brazilian CS cane crop. However, having reached the 2 ½ month pinnacle prices collapsed just under 125 points yesterday just managing to hold above 17 cents as a wave of profit taking emerged. Continuing the volatility, prices are, currently, up this morning some 30 points. The funds, who had slightly trimmed their long position by 10k lot according to the last COT report are probably now above 200k lots net long despite the sell-off. The rally has been exacerbated by a lack of selling above the markets as Brazilian millers remain well priced. However, considering the flat price strength the structure has weakened with both spot months slipping to a discount. Initially, some surprisingly selling in London saw the August drop to a sizable discount which was not helped by very limited trading volume. The July raws contract, having been trading at a 5 point premium at the end of April dropped to a 12 point discount yesterday. It would seem that nearby demand is limited with supply concerns later this year as the October contract is at a premium to the rest of the board.
Brazil’s CS harvest continues to be the centre of attention. No fresh estimates this week as to final sugar production – probably because it is such a confusing situation. Unica released its second half of April data on Wednesday. It showed that the crush hit 29.6 million tonnes for the reporting period with 1.15 million tonnes of sugar produced with a 44.54/55.46 split between sugar and ethanol. This was probably in line with expectation but was well below same period last season when the harvest got off to a cracking start and hardly relented throughout the crush resulting in a record amount of sugar being produced. As of the end of April 205 mills had started operations with another 30 mills expected to start during early May. Two other factors are now being added to the mix of uncertainty. Firstly, ethanol prices have surged in Brazil recently as the easing of lock-down restrictions see travel increase across the country. Currently, sugar is still more attractive for export and mills are very well priced for the season. Prices would have to drop considerable from current levels for mills to buy-back positions. Nevertheless, the improving ethanol demand may soon start to impact on the crush split and have analysts assessing sugar production. The second factor is that some rain has been received over the parched CS region recently and more, according to some forecasts, is expected. Again, this may have analysts adjusting their calculations. The old sugar adage ‘rain makes cane’ should be remembered.
Elsewhere it has been quiet on the fundamental front. India continues to export at a pace and at very much higher levels than predicted considering the export subsidy was announced so late. It is estimated that around 5 million tonnes has been contracted with expectations that the 6 million tonne target will be reached by the end of June. As mentioned last week there has been some chatter that some contract had been concluded without export subsidy but remain unsubstantiated but prices above the recent highs of 18.25 cents must be getting close to their non-subsidised level and their substantial stocks.
Veteran traders will remember when Cuba was a force to be reckoned with in Sugar. Therefore, it is sad to see total production this season is likely to be just 900k tonnes the lowest level since 1908 and a far cry from their zenith when they produced 8 million tonnes in 1989. Chronic lack of investment and crippling sanctions has brought the industry to this sorry state with the pandemic adding to their woes.
The shadow of inflation has seen equity markets take a thump recently which also hit agricultural commodities. The Dow dropped off its record highs earlier in the week as US inflation jumped 4.2% in 12 months by the end of April the biggest increase since September 2008. Some see the rise as temporary as supply bottle-necks develop and will subside while others are more cautious saying that a jump in inflation was inevitable as the US comes out of lock-down and the huge Federal spending programme accelerates. The grains and soya complex dropped earlier in the week as slightly better rains across agricultural areas of the US were seen over the weekend and funds trimmed their massive long positions. However, currently, the macro is positive with majority of equity and commodity markets trending higher. Sugar will inevitably continue to be influenced by outside influences given the large long position held by the funds. Add the uncertainty of Brazil and it is likely the markets will remain volatile.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Kevin Watkins, and Steven Trigg
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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© 2021 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.
© 2024 ADM Investor Services International Limited.
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