Sugar Market Report

Good morning,

Despite an early attempt to push higher aided by a strong close in London on Monday when NY was closed the fund buying of last week was absent to a great degree with prices ending down for the second session after hitting 3 ½ years highs last Thursday. The market had opened 5-6 points firmer and continued to improve in early trading soon pushing up another 20 points to hit 16.70  mid-morning. Prices held at around these levels until around mid-day when values started to slid when no further buying appeared. Over the next couple of hours prices slowly slipped lower soon dropping into negative territory. Some support was found around 16.20 but with little enthusiasm from the funds prices slipped again by the close to finish some 65 points off the highs reached last week. However, the structure held well with the HK losing just 2 points to settle at +85 while the KN ended unchanged at +59. London took a bit of a beating having reached fresh highs on Monday when NY was closed. The HK ended at +17.00 and the KQ at +13.80. Because of this the WP slipped from its recent highs with HH WP ending down at 96.30 while the KK WP lost nearly $4 to finish at 98.00. There was weakness across several of the agricultural commodity markets yesterday which probably impacted on sugar prices. However, there has been general chatter since prices reached 16.75 that there was no fundamental reasons for the rally to continue.

The Indian harvest continues apace. As of the 15th January total sugar production had hit 14.27 million tonnes compared with 10.84 million same time last year. 487 sugar mills are operating compared to 440 by the middle of January last season. Estimates for total sugar production are now between 31-35 million tonnes. This compares with 27 million tonnes last season. Analysts are now turning their attention to production prospects for the 2021/22 season which some believe could see even higher sugar production after abundant monsoon rains last year. Sugar cane still offers better returns for farmers than other crops especially with the subsidies. It is estimated that plantings in Maharashtra could be 40% higher than last season which if true certainly suggests output will be higher. This would mean another season of subsidies from the Government will be needed to protect the internal market. With Brazilian production expected to only drop marginally there would appear the prospects for a surplus of production for 2021/22 but, of course there is a long way to go and weather issues could easily appear.

The one major producer that is having problems is Thailand. Drought and competition from other crops saw production collapse last season. The harvest this season has been particularly poor so far. Total cane crushed is down at 21.6 million tonnes which is 41% down on same time last season while sugar production is running at 2.1 million tonnes down 43% from the same time last season. However, the harvest is still just getting started after a very sluggish start perhaps due to mills waiting to see if the cane improves after late rains replenished soil moisture levels but it is hard to see any significant catching up.

A mixed opening in NY with prices opening unchanged before swiftly improving 10 points on some light market on opening buying. However, once completed prices quickly fell back into the negative column. Currently prices have recovered and are trading around 5 points firmer. The HK and KN are around unchanged at +85 and +59 respectively. In early London trading the HK is lower at +16.20 as is the KQ at +13.40. The macro is mixed this morning with crude and equities firmer while the USD is weaker. However, grains and soya are lower again as they fall away from their peaks of last week. However, no one is going to be predicting the end of the rally  seen across the agricultural markets recently but the funds seem to be taking a breather. Sugar has been caught up in the fund buying across the complex but does not have the long term bullish fundamental picture seen in some other markets. Nevertheless, the funds continue to dictate and traders will continue to be very wary. The front month is devoid of any heavy producer selling so it would not take much buying to have prices rallying again. The funds will soon have to concentrate on rolling their longs out of the spot month which may put the HK under some pressure depending on the appetite of any trade houses that might want to take delivery.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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