Sugar Market Report for 10 March

The market rallied to a new contract high yesterday seemingly mainly on the back of an improved macro picture but also from a back-drop on positive fundamental sentiment. The market had opened 6 points lower before falling further to register the lows of the day within an hour of the opening in similar fashion to the previous session. The market then remained range bound for the rest of the morning albeit improving slightly. However, shortly after US traders got to their desks a bout of aggressive short covering and fresh buying saw prices soar 45 points in under 40 minutes with the high of the day and a new contract high for K-23 in place shortly after. However, once the buying dried up prices dropped back to settle 18 points off the highs but its highest settlement since the expiry of the H-23. Despite the flat price jump, the structure remained unchanged with the KN ending at +57 and the NV at +25. In London the market mirrored NY with good flat price gains. The KQ did improve slightly to end at +13.70 while the QV slipped back to settle at +13.80. This meant the KK WP improved to 126.00 while the VV WP dropped to 114.60. There did not appear to be one particular reason for the spike in prices yesterday apart from a positive macro picture and the continuing concerns over Indian and Thai production plus the possibility of lower EU plantings and lower Chinese yields. However, it did seem an orchestrated effort to improve prices probably knowing there is very limited resting selling above the market.

Sugar output in China’s main growing of southwestern Guangxi is set to be the lowest in 6 years due to drought earlier in the growing season according to analyst Greenpool. Overall production is set to reach 9.17 million tonnes which is a bit less than the official Chinese forecast of 9.3 million tonnes released last week. However, according to local traders, the current high world prices are impacting on demand.

La Nina has, officially, ended according to the US Climate Prediction Center and ENSO-neutral conditions are now in place and expected to continue through the Northern Hemisphere spring and early summer. Then there is an increasing chance of El Nino developing. This would suggest that the Indian monsoon will not be impacted by El Nino for this season although that does not necessarily mean it will be a normal monsoon and many continue to suggest that after 4 consecutive normal monsoons, the country is due a poor one. However, there are still around 3 months until the start of the monsoon season so there is likely to be a lot more conjecture before then.

This morning the market opened 11 points lower mainly on a negative macro picture. Currently, prices are 15 points lower. The KN is 2 points firmer at +59 while the NV is 1 point stronger at +26. In early London trading both KQ and QV are unchanged at +13.70 and +13.80 respectively. As mentioned the macro is negative this morning with US equity market down on poor banking results yesterday. This morning crude and most commodities are trending lower while the USD index is unchanged while the BRL ended weaker at 5.166. The market appears to be content to yoyo around the 21 cent level for the time being supported by the fundamental picture but with prices at elevated levels and the funds holding a large long position the market may struggle to push much higher in the short term.