Sugar Market Report

Good morning,

Friday saw the market settle virtually unchanged after resistance was seen at 12 cents again. The market opened 2-3 points firmer, slipped to unchanged before improving mid-morning to hit the highs of the day. Prices then slowly slipped lower to hit the day’s lows mid-afternoon. Prices did eventually pull off the lows after support was found at 11.75. However, it was only in the last few minutes of trading that prices managed to push into the plus column on some light speculative short covering. The VH finished 1 point lower at -68 while the HK ended 1 point better at +13. In London the VZ improved again by $3.50 to settle at +5.70 as the last of the shorts were forced to pay up in front of the expiry tomorrow. The ZH also improved by $1.00 to settle at -0.20. This put the VV WP higher at 94.40 although the HH WP ended weaker at 74.00. The Oi in London V-20 dropped 1k lots to 9,548 lots suggesting a delivery of, perhaps, around 300k tonnes. Another day of consolidation after the drop in prices seen at the beginning of the month. While resistance is growing above 12 cents there appears to be relatively good support below 11.75. The macro was fairly benign with less of the volatility seen earlier in the week.

The COT showed that, as of the 8^th September, the funds/specs had cut their net long position by 32,432 to 158,516 which was generally in line with expectations. The non-commercials cut their net longs by 19,196 to 121,274 as some of the shorter term funds liquidated. Since the report prices have dropped further so they are now likely to be around 110k lots net long. The commercials cut their net shorts by 36,911 to 417,597 as the trade took profits (and possibly some producer buy-backs) while end-users took to price drop to price. The Index funds cut their net longs by 4,479 to 259,081.

Czarnikow see a 5 million tonne global surplus for 2020/21. They see world sugar production increasing to 176.7 million tonnes which is very close to the production in 2018/19. Czarnikow see Brazilian production hitting 36.7 million tonnes up a massive 37% from the previous two seasons while Indian production will improve to 32.5 million tonnes after the poor cane harvest in 2019/20. EU production will remain around unchanged at just over 17 million tonnes. This is a drop of around 300k tonnes on their previous estimate due to the impact of the jaundice virus.  Thai production will fall to 7.1 million tonnes due to draught and a lower planted area.

The US Climate Prediction Centre reported last week that a La Nina weather phenomenon has officially formed. The last significant La Nina was in 2011. It can mean above-average rainfall across Australia and South-East Asia but lower rainfall across South America with draught possible across parts of Brazil. Generally, the La Nina weather system does not have too much impact on global sugar production but analysts and traders will be watching to see whether it causes dry weather across the sugar and coffee regions of Brazil where it has been relatively dry recently.

This morning the market opened around unchanged before improving slightly. Prices are, currently, around 3-4 points higher. The VH is 1 point firmer at -67 while the HK is 1 point lower at +12. In London the VZ is weaker at +5.20 while the ZH is at -0.40. This morning the macro is positive with most commodities higher on the back of a weaker USD. Crude is virtually unchanged while equities are higher. The BRL ended at 5.33 on Friday. It does look as if the market will remain range-bound for the time being continuing to consolidate within the range seen back in June/July. It would seem unlikely the funds will liquidate more longs unless prices slip back below 11.70 while there seems some scale up selling from 12 cents. Nevertheless, prices look more likely to improve slightly especially if the USD weakens further.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg

Phone: +44(0) 207 716 8598

Email: admisi.sugar@admisi.com

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