Sugar Market Report for 6 March

The market rallied to a new contract high on Friday after Indian production data suggests that the predicted drop in production is beginning to manifest itself. The market had opened 4 points firmer but soon started to climb as ISMA released their figures. The market gained over 50 points during the morning before some light liquidation held prices around the 20.70 mark. However, later in the session another bout of buying appeared taking prices through the 21 cent barrier. Further late liquidation took prices off the highs but it was still a strong close with the spot month 61 points higher on the day. The structure strengthen as expected with the KN up 11 points to +67 while the NV ended 14 points firmer at +33. In London it was a similar picture with good flat price gains and strengthening spreads. The KQ ended $2.40 firmer at +15.70 while the QV was $3.00 firmer at +16.90. The combination of bullish sentiment from the Dubai sugar conference and the confirmation that Indian production is likely to quickly tail off was enough to send prices higher with limited producer selling.

ISMA reported Friday that total Indian production had reached 25.8 million tonnes by the end of February which represents a 1.8% rise year on year. However, this is a drop from the over 5% rise recorded by the middle of February. As of the end of the month 17 mills in Maharashtra had stopped crushing which is nearly two months earlier than last season when a record 36 million tonnes of sugar was produced.

The Dubai sugar conference was its usual well run and informative event. It was well attended with many taking the opportunity to make the trip now the world is fully open post-pandemic. The general sentiment was bullish for sugar prices. Lower Indian production with general consensus between 33 and 34 million tonnes was the main talking point along with the prospects for the soon to start Brazilian CS harvest. In stark contrast to India the cane is in excellent condition. Total cane is seen at around 600 million tonnes with around 37 million tonnes of sugar production which if achieved would be nearly 11% higher than last season. The general view is that the split will remain very firm in favour of sugar at 48%. Elsewhere there is concerns over EU production. Lower planted areas are expected due to farmers turning to other crops as pesticide bans are enforced. However, most are expecting the current season to end with a small global surplus although prospects for the 2023/24 season are more uncertain. There is a view that the up-coming Indian monsoon may be poor. This view does not seem to be based on any firm evidence apart from concerns that El Nino could develop and the fact that the last four monsoons have been good. Time will tell but traders still have a long wait until the finish of the monsoon.

The CFTC continues to release the delayed COT reports after the ransomware issues hit systems provider Ion. On Friday the February 7th report was released showing that the funds had cut their net longs by 13,325 to 158,646. This was during a period when prices dropped 100 points so a cut in longs was to be expected although some may be surprised it was not more. Since this report prices have rallied over 160 points so it should be assumed the funds have reinstated these longs and more. The general consensus is that they could be up to 250k lots net long which could, possibly, restrict further buying for the time being.

This morning the market opened 1 point firmer before slipping back. Currently, prices are 11 points lower. The KN is 2 points firmer at +69 while the NV is unchanged at +33. In early London trading the KQ is a tad lower at +15.20 while the QV is virtually unchanged +16.80. The macro is negative this morning with most agricultural commodities trending lower while the USD Index is also a tad weaker. The BRL ended the week at 5.20. The market continues to look firm although Friday’s rally may have been slightly over done and some correction may be seen. The fund position remain opaque with information running nearly a month behind. The general view at the end of the Dubai conference survey was that prices will not drop too much and a 19 – 22 cents range is seen in the short to medium term with few expecting prices to break significantly above the highs of H-23. Nevertheless, there is a chart gap between 22.00 and 21.04 on the 1st month continuous – could this be filled?