Sugar Market Report for 12 May

The market dropped yesterday on a general negative macro picture despite disappointing Unica data. The market had opened 4 points weaker before swiftly losing another 10 points. However, prices quickly recovered and it was not long before the highs of the previous session were tested. Despite hitting the level twice the market was unable to break higher which, eventually, triggered some long liquidation which took prices back to opening levels. However, the selling became more aggressive as the macro picture deteriorated slumping nearly 60 points after US traders got to their desks. The release of the Unica data for the second half of April which was bullish saw prices bounce nearly 50 points but the macro continued to weigh on the market and prices saw started to fall back hitting the lows of the day on the close. The 26 cents level was momentarily breached but soon recovered with no stops triggered. Despite the fall prices, essentially, remained within the previous day’s range and still only 80 points off the contract highs reached late last month. The NV slipped 3 points to +33 while the VH was 2 points weaker at +40. In London the market dropped in line with NY with the QV ending slightly lower at +8.30 while the VZ was virtually unchanged at +9.20. The WP improved marginally with VV WP ending at 130.60 and the VZ at 121.40. Yesterday’s reversal was unexpected, especially given the Unica data (see below) was below expectations. However, the strength of the USD and the negative macro picture fundamentals came second best yesterday not helped by the double top put in place in early trading which had triggered liquidation.

Unica released their harvest data for the second half of April yesterday afternoon. The report showed that 21 million tonnes of cane was crushed producing 989k tonnes of sugar from a 43.80/56.20 sugar/ethanol split. This was below expectations. A S&P survey earlier in the week saw analysts seeing around 25.5 million tonnes of cane being crushed and 1.24 million tonnes of sugar. However, prospects had been tempered by the knowledge that 3-4 days had been lost to rain. While below most estimates some did point out it bodes well going forward as the weather improves and the crush can get into top gear. The weather has been dry during the first half of May so production should show a marked improvement for the next report in a fortnight’s time.

The US CPC weather forecaster said yesterday that they see a transition from neutral conditions to El Nino developing within the next two months with a 90% chance of persisting into the Northern Hemisphere winter. The expectations for El Nino developing has been in the market for several months now. Concerns that it will bring dry weather to Asia has sparked some concerns that the Indian monsoon may be affected. Time will tell but it is notoriously difficult to predict the timing and development of any El Nino phenomenon – how quickly will it develop and how severe might it be. It would seem, at the moment, the Indian monsoon may not be impacted too much as it starts in less than a month. However, Unica have already commented that it might cause rains earlier than normal across the CS which may impact on the late season harvest. However, it should be noted that in the past El Nino has had limited impact with higher production recorded.

This morning the market opened 5 points higher before improving further. Currently, the market is 16 points higher. The NV is 1 point firmer at +34 while the VH is unchanged at +40. In early London trading the QV is a tad firmer at +8.60 while the VZ is also slightly firmer at +9.50. The macro is a slightly more positive picture this morning although crude is a tad lower and grains/soya slightly firmer. The USD Index is a little weaker and the BRL ended at 4.93 last night. Assuming the macro does not deteriorate again then prices are likely to improve given the underlying fundamental picture and concerns over how the development of El Nino might impact on production across the world. Nevertheless, yesterday’s weakness may have the funds reviewing their positions although it would seem unlikely they will make any wholesale changes. Good support is seen below 26 cents and there is probably limited selling to be found until prices reach the recent highs again.