Sugar Market Report for 3 March

Good morning,

The market pushed higher again yesterday as crude prices continued to surge higher eventually settling at its highest level since 20^th January (basis K-22). The market had opened 16 points higher before improving another 10 points. The market then dropped back as crude stuttered slipping below unchanged for a while. Buying around unchanged eventually had prices improving again with new highs for the day reached in late trading. The KN actually slipped 6 points to end at +16 which suggests much of the flat price buying is speculative. The NV improved 3 points to finish at -2. In London is was a quieter affair with the structure barely changed with KQ at +12.70 and QV at +7.90. Thi meant the WP ended slightly lower on the day with KK WP valued at 104.30 and VV WP at 86.50. After the strong performance of Tuesday and continuing very positive macro especially crude it was not too surprising prices improved further yesterday. The continuing turmoil caused by the Russian/Ukraine conflict has seen crude prices improve to their highest level since early 2013 and there would appear no reason for prices not to continue to increase further.

The huge jump in energy prices in general means that analysts are now looking closely at what this may mean for ethanol production in Brazil when the next harvest starts next month. Goldman Sachs reported yesterday that Brazilian gasoline prices are 23% below current international prices and this is widening further. Therefore, there is growing pressure on Petrobras to raise gasoline prices which will undoubtably mean increasing demand for ethanol. However, the Brazilian government are very wary of inflation so are likely to want to keep price increases to a minimum. The recent strengthening of the BRL will also add to the argument for more ethanol production.

This morning the market opened 1 point higher before improving another 5 points. However, since the opening prices have slipped back to unchanged. The KN is 2 points better at +20 while the NV is flat. The NV has improved around 17 points over the past week suggesting that traders see not as much sugar perhaps being available from Brazil as a consequence of more cane being diverted to ethanol production. In early London trading the KQ is firmer at +13.50 while the QV is valued slightly higher at +8.20. The macro is, again, very positive again this morning with, virtually, all commodities higher led by crude which is around 5 % higher. The USD index is also slightly firmer remaining at its highest level since July 2020. Despite continuing very firm macro sugar looks as if it could stall around current levels but much will depend on whether the funds continue to buy. The front spread weakened yesterday despite the flat price strength and remains at the same level as seen before the Ukraine war started. The global situation remain very uncertain and is likely to remain that way for many weeks making price direction prediction particularly difficult.