Sugar Market Report for 11 August

Yesterday saw prices jump to their highest level since 22^nd July despite better than expected Unica data. The market had opened unchanged but quickly started to improve with the opening levels also the lows of the day. Prices continued to consistently climb during the morning and early afternoon to post the day’s highs before falling back in front of the Unica release. While slightly bearish prices only weakened marginally before climbing again on the close suggesting some market on close fund short covering. The VH was strong in early trading moving to a 4 point premium for the first time this year. By the close it has dipped back to -2. The HK gained 1 point to end at +62. In London it was a staid affair with the VZ and ZH finishing unchanged at +28.30 and +14.70 respectively. This saw the WP improve only very marginally with the VV WP ending at 146.70 and the VZ at 118.40. After several sessions of gains it will have surprised few that the funds started to cover short in a more aggressive manner aided by a weak USD and an overall positive macro picture after US inflation figures were softer than expected suggesting less aggressive interest rate increases for the Fed. The Unica data was largely ignored as it was only slightly better than expectations.

Unica released their harvest data for the second half of July for the CS yesterday afternoon. It showed that, during the period, 48.93 million tonnes of cane was crushed producing 3.3 million tonnes of sugar from a 47.77/52.23 sugar/ethanol split. This was slightly better than anticipated by a S&P survey. The crush and production is slowly catching up with last year’s harvest after a slow start and high cane diversion to ethanol. Currently, the crush is 7.42% down year-on-year while sugar production is still just over 13% lower. The harvest is now around half completed in terms of time so much will depend on the length and strength of the harvest tail as to whether the 32 million tonnes produced last season can be reached or even bettered. Recent rains across the region will have been beneficial to the remaining cane. Sugar still is more profitably than ethanol but whether it is enough to see the split rise in sugar favour remains to be seen. However, it would now seem as if the most pessimistic of earlier forecast of 29 million tonnes will be bettered.

Egypt has strategic sugar reserves sufficient for 6.6 months according to the supply minister Ali Moselhi.

This morning the market opened unchanged before improving slightly. Currently, prices are 1-2 points firmer. The VH and HK are unchanged at -2 and +62 respectively. In early London trading the VZ is firmer at +29.10 as is the ZH at +15.80. The macro is a slightly positive picture with crude barely changed, grains/soya mixed and softs firmer. The USD Index is weaker and at its lowest level since early July. The market looks likely to continue to improve but much will depend on whether the funds cover more of their shorts. More selling likely to be encountered above 18.50 but only on a scale up basis. The USD weakness and structure strength will also be supportive.