Weekly Sugar Wrap for 26 November

Over the past three weeks the market has rallied to its highest level since late August before falling back culminating in a sizable drop this morning. This is due, mainly, to a negative macro picture after the announcement that a new Covid variant, emanating from Southern Africa, with multiple mutations may be more virulent and current vaccines less effective. The 110 point move higher culminating in prices just failing to reach 20.70 was not based on any particular news but a combination of the continuing bullish sentiment, a positive technical picture and limited selling. However, it should also be noted that trading volumes remain much below average and the market, essentially, remains range-bound between 19.60 and 20.60. Last week saw the Z-21 white sugar expiry which was an unspectacular affair. Just under 300k tonnes of white sugar was delivered of which 90% was Indian and the rest Brazilian. The delivery port for the majority of the Indian sugar was Kandla with Suape the other delivery port. Recife was the Brazilian port. It was, as often the case, large trade houses trading among themselves with no huge consequence for the overall market. 

Fundamental news wise it has remained quiet as is often the case at this time of year with the Brazilian CS harvest ending and the Indian, Thai and EU harvests beginning. The CS harvest is limping over the finishing line. Earlier this week the data for the first half of November was released by Unica. It showed 12.55 million tonnes of cane was crushed during the period which produced 626k tonnes of sugar with a split of just under 40% going the sugar production. The crush and production was slightly higher than predicted. Cumulative totals have now reached 516 million tonnes of cane and 31.84 million tonnes of sugar. Therefore, total production looks likely to push over 32 million tonnes but only marginally. It is likely that only 30-40 mills are still operating at the moment. Attention is now turning to the prospects for the next harvest which will, officially, start at the beginning of April. No one is predicting a miraculous recovery in the cane despite reasonable rainfall over the past couple of months. The shadow of La Nina hangs over Southern Brazil threatening lower rainfall over the next few months when good amounts of rain are required. It is, by no means, a certainty that the drought conditions of this time last year will prevail as the phenomenon is expected to be weaker and short lived this time. However, the weather will be watched closely over the coming weeks. Currently, more widespread rains across the region are forecast for the next 10 days. The Brazilian Government’s agency, Conab, mentioned in their last report that the CS cane planted area had declined by 4% this season and with Corn ethanol production increasing (15% this season) the erosion may continue.

As mentioned their Indian cane harvest is up and running. Latest production data sees just over 2 million tonnes of sugar produced by the middle of November – some 24% up year-on-year. While it is early in the season it does bode well for the rest of the harvest. Maharashtra state’s planted area is up some 8.5% compared with last season to 1.250 million hectares which is the highest area ever according to the state’s sugar commissioner. There has been some chatter that more cane will go to ethanol production than anticipated and that this may confine exports to only 5 million tonnes this season. Time will tell but Indian sugar production estimates often increase as the harvest progresses. The Thai harvest will start within the next fortnight and promises to be very much better than last season disaster when just 6.5 million tonnes were produced. While the Thailand’s Office of Cane and Sugar Board see total sugar production at 9.5 million tonnes for 2021/22 other analysts see the possibility of production reaching 10.5 million tonnes and increasing even further in 2022/23. 

As mentioned above the emergence of the new Covid variant from Southern Africa has spooked the equity and commodity markets with a sea of red across the board currently. It is, obviously, far too early to make any firm assumptions. However, with Covid cases rising substantially in several European countries recently there is a definite risk-on mentality washing over the markets at the moment. If nothing else it is a reminder that the world has not beaten the virus yet and more difficult times may lie ahead despite vaccines and better treatments. Sugar, inevitably, has been caught up in the general macro sell-off and the extent of the decline will, continue to be ruled by it in the short term. However, from a fundamental perspective, there is probably little justification for prices to fall much below 19.50. The recent high (20.69) was just below good producer selling so, for the time being prices may remain predictably range-bound.