Sugar Market Report for 15 March

Good morning,

An inside day recorded yesterday as prices ended lower as crude continued to weaken. The market had opened 4 points weaker before tumbling another 17 points in the first 5 minutes of trading on the back of a weak crude price. Good support was seen at 19 cents hit multiple times but never breached. Later in the session prices did improve slightly but remained in the negative column until the close when day traders cut longs and prices dropped 10 points. The trading volume was very limited at below 80k lots. The KN dropped 2 points to end at +3 while the NV was 3 points weaker at-9. In London it was also very quiet with the KQ ending slightly weaker at +9.50 while the QV was a tad firmer at +6.50. The WP ended slightly firmer with Kk WP at 108.00 and the VV WP at 90.40. However, interest was limited with no block trades. The market seems to be caught between with a bit of a conundrum. The market has been supported by the view that Brazilian millers will divert more cane to the production of ethanol when the season starts next month due to crude hitting 14 year highs last week. However, crude prices have fallen over 25% over the past 7 sessions possibly lessening the demand for ethanol.

Unica released their crush data for the second half of February yesterday. It showed just 159k tonnes of cane was crushed during the period producing no sugar just ethanol. However, internal ethanol sales remain uninspiring and do not suggest, at the moment, there will be a huge shift in the sugar/ethanol split in favour of ethanol when crushing begins in earnest next month. The cane continues to take benefit from good rains over the weekend across much of the main cane regions with more episodes of rain forecast for the next 10 days. This extra rain will help the cane and should help boost cane prospects.

The Thai cane harvest is beginning to slowly wind down with 5 mills already shut for the season. The total crush has reached 82 million tonnes with a total of 8.95 million tonnes of sugar. It is estimated there is between 7 and 9.5 million tonnes of cane still to be crushed. Therefore, total crush could reach around 91 million tonnes. The end of the current harvest has had analysts starting to look at prospects for next season when a cane crop of over 100 million tonnes looks more than likely assuming the weather remains good.

Abinash Verma, the Director General of ISMA, has reiterated his view that total Indian production this season will be 33.3 million tonnes of sugar. With internal consumption around 27 million tonnes it is another 6 million tonnes surplus. Therefore, it is not surprising that ISMA see total Indian sugar exports reaching 7.5 million tonnes by the end of the current season.

This morning the market gapped lower opening 28 points weaker on the back of a weak crude quote which is, currently just over 5.5% lower and at its lowest level since the beginning of March. Sugar prices weakened another 15 points to their lowest level since 3^rd March when prices were on the way up to 19.89. Currently, prices are 38 points lower on the day. The KN is 1 point weaker at +2 while the NV is down 2 at -11. In early London trading the KQ is unchanged at +9.80 while the QV is slightly weaker at +6.00. The macro is negative this morning with, as mentioned, crude down and virtually all other commodities lower apart from wheat. It would seem a significant break lower is being seen in sugar after holding relatively well yesterday. With prices now well below 19 cents there is a distinct possibility that the funds will start to cover the fresh longs they established recently with prices weakening accordingly. The top of the recently formed chart gap is now the up-side target at 19.00 while support is probably not likely to be seen until prices approach 18.50.