Weekly Sugar Wrap for 22 October

In the last ‘Sugar Wrap’ we suggested funds activity would decide which end of the range the market would eventually breach. After being caught within a 130 point range for 30 sessions some funds decided to throw in the towel and started to liquidate long held purchases. The catalyst to this decision was probably the markets inability to break up on the up side Monday week ago when news that Brazil’s Petrobras had increased gasoline prices, the macro was firm with energy prices continuing to rocket and a general view that prices would push up to Indian selling had the market up at the top end of the range and looking poised to test 21 cents. In the event the bulls were left disappointed as prices soon dropped away. The old market adage that no move is substantiated without volume was never truer. Just over 70k lots traded on the day and the funds were conspicuous by the absence. Prices then dived reaching the bottom end of the range over the next three sessions before an attempt at some consolidation. However, some fund managers, obviously, decided the up-side now looked decidedly limited and decided to off-load longs and redeploy the funds elsewhere. Prices collapsed to below 19 cents and to their lowest level since early August (basis H-22 chart). Currently, the market is attempting to consolidate around 19 cents. In hindsight the fact the funds, according to the past couple of COT reports, had been particularly inactive might have indicated they were getting frustrated with sugar inability to push back to the 4 ½ year highs reached in the middle of August.

The recent slump in prices of just under 180 points was not on the back of any significant shift in fundamental news more a case of an accumulation of stale news being well engrained in the market. It is true that rains across Brazil’s CS has been very welcome after months of below average rainfall which had left soil moisture levels at multi-year lows but many believe that no amount of rain over the next six months will undo the damage caused to the 2022/23 cane crop. Additionally, analysts are also warning that the appearance of La Nina might cut rainfall over the coming months. Alvean do not see much improvement in Brazil’s CS crop for the next season. They see a total crush of 530 million tonnes and sugar production around 32-32.5 million tonnes which is in line with Czarnikow’s last estimate of 32.9 million tonnes. The current harvest is limping to an end with Unica’s second half of September harvest data showing both cane and sugar production well down on the same time last year. Cumulative totals for the season are now significantly lagging last year with total crush at 467.5 million tonnes down just under 7% while sugar production has just pushed over 29 million tonnes which is nearly 9% down on last season. The next Unica report for first half of October should be released Tuesday or Wednesday next week and is likely to show another significant slow down in the harvest. It would now seem very likely total sugar production will struggle to breach 32 million tonnes some 6 million tonnes less than last season record busting production.

Elsewhere fresh news remains limited as the Indian and Thai farmers prepare for the start of their harvests. Recent rains have prolonged the monsoon but continue to be beneficial to the cane especially in Thailand. Indian sugar exports are seen at around 6 million tonnes while Thailand’s exports could reach 10 million tonnes after a very poor harvest last season. The EU’s beet harvest is now underway with most estimates seeing total production at around 15.7 million tonnes an increase of around 1.2 million tonnes in production compared with last season which was blighted by dry weather and pest issues. The weather has been much wetter this year but is likely to cut sugar content. More data on the harvest will be released over the coming weeks.

The macro has remained volatile recently with crude prices near their highest levels since October 2014 which will continue to stimulate ethanol production across the globe. However, from a Brazilian prospective the BRL is weakening again ending at 5.67 against the US dollar last night its lowest level since the middle of April. The recent slump in sugar prices has brought the level of Brazilian ethanol parity into focus. Currently, most see it at around 19 cents which may explain the support building around this level in New York. On the pricing side Archer Consultancy estimate that Brazilian mills have priced just under 40% of their sales for 2022/23 which is their highest level probably ever with another six months to go before the next season start. Their average prices is probably well below current levels so it is unlikely there will be much buy-back. Analysts and traders will be watching for any indication that the recent drop will stimulate physical off-take. Freight rates are slipping. The Baltic Dry Index fell over 2% yesterday to its lowest level in nearly a month. While rates still remain very high there is some indication that the up-side maybe limited. There certainly was not a rush of end-user pricing when prices drop out of the range but, undoubtably, pricing was done on a scale-down basis. Tonight’s COT will be interesting as it will capture Monday and Tuesday’s sell-off and, therefore, give an indication how much was sold by the funds and bought by end-users.

Assuming the funds have exhausted their selling for the time being it is likely the market will attempt to consolidate into a range unless there is some significant fundamental news or the macro collapses. Prices could make a sizable correction as it is unlikely too much resting selling will be above the market with producer selling well above current levels. However, one cannot help thinking that the market may become becalmed again.

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.

© 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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