Sugar Market Report for 26 May

The market dropped to its lowest level in just over a month in good volume as good Unica harvest data and negative macro picture saw fund liquidation. The market had opened 9 points lower leaving a 1 point chart gap from the previous day’s low. Prices continued to tumble culminating in the lows being hit just as Unica released their report. Sell stops were triggered as the low from early April was breached at 24.88. There was a swift bounce off the lows which saw prices jump 40 points off the lows but more selling soon appeared which kept the market under pressure through to the close but there was little evidence of any further fund selling on the close. The structure weakened again which will surprise few with the NV losing 5 points to end at +23 its weakest since the middle of March while the VH dropped 10 points to +31 its weakest in a month. In London the structure remained remarkably firm with the QV and VZ both finishing slightly firmer at +11.50 and +13.00 respectively. This meant the WP was also firmer with VV WP at 143.10 and the VZ WP at 130.20. The combination of bearish fundamental news from Unica where the crush and harvest beat estimates and the negative macro due to the US debt ceiling crisis was the catalysts for prices to drop nearly 100 points in two sessions. Some funds who had been, resolutely, holding on to longs since late last year decided to bale out. They had probably been contemplating this after the market failed to test the highs set in late April over the past month.

Unica released their harvest data for the 1^st half of May yesterday afternoon. It showed that 43.98 million tonnes of cane were crushed producing 2.53 million tonnes of sugar from a 48.00/56.00 split. This was better than expected and shows the harvest is now in top gear after a slow start due to rain in April. Accumulated production for the season has reached 4 million tonnes some 48% higher than this time last season when the crush got off to a very slow start as mills gave the cane more time to mature.

The Indian weather office released their latest predictions for the monsoon this morning. Currently, they see the country receiving 96% of average rains this season. However, they see lower rainfall for June but some recovery should be seen in July. They also predict that El Nino will emerge during the monsoon season but a positive Indian ocean dipole could partly offset the impact. Nevertheless, they think the North-Western regions may get below-normal monsoon rains which includes the second largest sugar producing state of Uttar Pradesh.

This morning the market opened 12 points higher but immediately dropped back to unchanged before recovering again. Currently, prices are 13 points higher. The NV and VH are unchanged at +23 and +31 respectively. In early London trading the QV is slightly firmer at +11.80 as is the VZ at +13.40. The macro is a more positive picture this morning with most commodities higher after the weakness of yesterday. Crude is only marginally higher while the USD Index is weaker. The BRL finished weaker yesterday at 5.03. The marker saw its long anticipated large correction yesterday aided by a negative macro picture caused by the uncertainty over the US debt ceiling crisis. While it is unthinkable that an agreement will not be reached between the White House and Congress it looks as if it will go to the wire as the deadline of 1^st June looms. The funds were big sellers yesterday while end-users took advantage of the weakness to price. The volume was heavy at 278k lots. Today’s action will be dictated on whether the funds continue to sell and what happens to the macro.

Both London and NY sugar markets are closed Monday.