Sugar Market Report for 2 March

Good morning,

The market improved over 3.5% yesterday as it made a spectacular recovery from near two months lows with K-22 settling at its highest level since 25th January. The market had opened 2 points firmer but immediately started to improve and only hit some light resistance just below 18 cents. The market held at these levels for a while before starting to push higher again as US traders got to their desks. The 18 cent level was soon breached which trigger further fresh buying with prices gaining another 40 points and improving on the highs seen on Thursday when prices surged higher on the start of the Russian invasion into Ukraine. There was a sharp 30 point drop on profit taking before prices improved back towards the highs by the close. Settlement was 9 points down from the highs although prices did drop another 8 points post-settlement. The KN ended 3 points firmer at +22 while the NV ended 4 points firmer at -5. In London the gains were not as large and the KQ ended only marginally higher at 12.90 while the QV gain $1 to finish at +7.80. This meant the KK WP was slightly weaker at 105.00 as was the VV WP at 88.00. The main driver for the rally was the macro as sugar finally followed other commodity markets higher as funds started to buy again. It maybe the case that sugar was looking cheap against other commodities especially crude which has surged nearly 15% since before the Russian invasion started. Traders will be mindful that with surging energy prices ethanol production is likely to be cranked up at the expense of sugar when the Brazilian CS harvest starts next month.

The details of the H-22 delivery were issued by the ICE exchange yesterday. Total delivery was 26,383 lots with Sucden Paris and Sucden Americas taking all. On the sell side Alvean, Wilmar, Man, LD and Viterra were the main deliverers with Czarnikow, CSC and El Salvadorian producer Cassa making up the balance. 77% of deliveries were Brazilian sugar to be delivered from Santos, Paranagua and Maceio. The other 6,072 lots were from Argentina, Central America and Mexico. Despite the big rally yesterday it is difficult to argue the delivery was bullish and does suggest yesterday’s jump in prices was more macro led than on fundamentals.

According the EU Commission EU sugar production is likely to be 16.1 million tons in total for 2021/22 up 10% from the 14.5 million tons produced last season. EU sugar consumption is seen at 14.55 million tons. The EU’s ending stocks will reach 1.33 million tons slightly higher than the 1.23 million tons last season.

This morning the market opened 16 points higher following the strong close last night and a very positive macro picture this morning. Currently prices are 20 points firmer. The KN is 2 points firmer at +24 while the NV is also firmer at -3. In early London trading the KQ is firmer at +13.80 as is the QV at +8.10. The macro, as mentioned above, it again very strong today with crude already 6% higher and at its highest level since 2014. Corn and wheat are also very firm which is not surprising given the importance of Russia and Ukraine as producers. The USD Index is also firm and back at its highest level since early July 2020. The funds are likely to continue to buy and they have ample ammunition. Nevertheless, there would appear no compelling reason from a fundamental basis for prices to rally too much more. However, good support had build below 17.50 and a correction higher was likely. Now the question is how high can prices go? If the funds continue to increase their net long position and sellers are, understandably, wary then prices will continue to improve. The Ukrainian situation is very uncertain and for the time being it does look as things will get worse. Selling is only likely to be found if prices push above 19.00 cents.