Sugar Market Report for 8 March

The market hit new contract highs yesterday but the spot month spread weakened having now dropped 17 points from the highs of last week. The market had opened unchanged before quickly improving 13 points. The market then settled into a relatively narrow 9 point range for the rest of the morning hovering around the 21 cent level. Prices dipped as US traders got to their desks with the lows of the day posted at just above 20.81. With this support in place prices started to improve and soon jumped higher on some aggressive buying which met with limited selling. The highs of last week were soon breached which appeared to trigger further buying which quickly took prices to the highs of the day before profit taking saw prices drop back settling around 23 points off the highs. The KN eased 6 points lower to end at +58 while the NV dropped 3 point to +28. In London the flat price remained firm with the KQ around unchanged but the QV up over $2 at +15.80. The KK WP regained the losses of the previous session ending up nearly $5 firmer at 124.80 while the VV WP finished virtually unchanged at 114.70. Yesterday’s push higher was against a backdrop of a negative macro picture as the USD surged after Fed’s Jay Powell suggested more interest rate hikes were likely. Crude tumbled on higher US stockpiles and inventories fell. Continuing chatter of lower Indian and Thai production continues to fuel the rally aided by limited producer selling above the market.

The CFTC COT are continuing to release the delayed COT at a rather slow rate. They are running three weeks behind while sugar prices have improved over 150 points since the last report for the 7th February. Much conjecture on the size of the fund’s current net long position. Most believe they are well over 200k lots long with some believing they could be over 250k lots. Given the majority of the longs will be in K-23 it is worth noting the OI is just over 400k lots suggesting they could be holding a very top heavy position. Conversely, they have rolled at a considerable premium so are sitting on very good profits.

Brazil will produce six billion litres of corn ethanol in 2023/24 that starts in April according to the trade group Unem. This will represent an increase over last season of 36.7%. The amount of Brazilian corn ethanol has been increasing consistently over the past few seasons and this further increase will undoubtedly impact on cane ethanol production. Currently, it pays considerably better for the mills to produce sugar and this is likely to be the case throughout the next season.

This morning the market opened 2 points lower before swiftly dropping another 10 points. Currently, prices are 6 points weaker. The KN is 1 point weaker at +57 while the NV is 2 points weaker at +26. In early London trading the KQ is a tad firmer at +13.60 while the QV is virtually unchanged at +15.20. The macro continues to look negative with crude lower as are most other commodities. The USD index has slipped slightly after the big gains yesterday while the BRL ended at 5.19 last night. The market continues to be well supported but headwinds from elsewhere may trigger more extensive long liquidation if new highs cannot be hit. The slight weakening of the KN may indicate a view that the flat price may struggle to move higher. However, a large wholesale drop would seem unlikely with end-users poorly priced.