Written Commentary
Good morning,
The market buoyed by higher crude and a stronger Brazilian BRL saw prices rise to their highest level since the 7th March before slipping back to settle at same level as on 25th March. The market had opened unchanged but soon improved leaving the opening level the low of the day. Over the next hour prices improved 20 points before dropping back slightly as crude values dropped into the negative column. However, by the time US traders got to their desks prices were back to the earlier highs and continued to improve hitting the day’s highs mid-afternoon. Prices then slowly eased lower on a mixture of profit taking and producer selling to settle firm. The KN ended 1 point firmer at +19 while the NV was unchanged at -5 suggesting the flat price improvement was mainly on speculative buying. In London the KQ continued to slowly weaken ending at +9.60 some $10 off the highs reached on 22nd March. The OI continues to relatively large at 21,783 lots with another 8 trading sessions until expiry. The QV was also weaker ending at +6.80. This meant the WP weakened with KK WP finishing at 108.40 and the VV WP at 95.10. The market continues to be greatly influenced by the crude and BRL price which together are making ethanol production across Brazil’s CS more competitive than sugar and suggests a large percentage of cane will be used for ethanol production when the CS 2022/23 crush gets underway.
The Brazilian governments new appointee for the position of CEO of Petrobras has pulled out of the role. Adriano Pires has said that he could not reconcile his consultancy work and the CEO role. It was widely seen as a political appointment after President Bolsonaro effectively sacked the incumbent CEO after they clashed on fuel pricing policy with Bolsonaro upset of recent rises in gasoline and diesel prices. What happens next is unclear but Bolsonaro is likely to remain keen to get someone in charge of Petrobras who will keep future fuel prices increases to a minimum as he is keen to control inflation especially with a Presidential election later this year.
The Thai harvest is proving to have a long tail this season. As of the 3rd April 26 mills out of 57 were still crushing albeit at a much lower rate. As of the date a total of 91.10 million tonnes of cane had been crushed producing a total of 10 million tonnes of sugar. It is estimated up to 800k tonnes of cane are still to be crushed so sugar production could end above 10.5 million tonnes.
Indian production remains very strong. Again the tail looks likely to be long. As of the end of March there were 366 mills still crushing. At the same time last season only 284 were crushing. The current estimate for total sugar production continues to rise with current estimates now over 34 million tonnes by another 500k tonnes. India sugar stocks remain very high with estimates at around 11 million tonnes by the end of the season if exports are restricted to 8 million tonnes. Given forecasters see a normal monsoon this year it is likely the country will produce another 30 million tonnes plus and could be able to export another 7 million tonnes of sugar next year. With Thai production likely to hit 12 million tonnes and Brazilian production higher than last season it would appear the market will be well supplied for next season.
This morning the market opened 10 points firmer before improving further. Currently, prices are around 12 points firmer. The KN is 2 points firmer at +21 while the NV is 1 point stronger at -4. In early London trading the KQ is a tad lower again at +9.30 while the QV is firmer at +7.50. The macro is broadly positive this morning with crude slightly higher and grains/soya firmer. The USD index a slightly weaker and the BRL at another 2 year high ending at 4.595 last night. The market looks likely to push higher today assuming crude does not see a big collapse as the BRL continues to improve. Whether the strong BRL will see a large shift to ethanol production remains to be seen but it is the current view of the market and with limited selling until 20 cents the market could make new highs.
Contact the ADMISI Sugar Desk team:
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
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