Written Commentary
Written by Howard Jenkins, Head of Global Commodities, ADM Investor Services International Limited
The week has seen President Trump recover from Covid and sugar survive the ensuing macro sell-off. Prices have seen a determined push higher with NY gaining nearly 70 points primarily on fund buying meeting with thin scale up selling. Current prices are not that far below pre-Covid levels when chatter of 15 cents and above were being bravely predicted.
The record delivery against the October contract is now a distant memory as traders and analysts predict Brazilian sugar production during September could nudge over 6 million tonnes putting some perspective on the 2.58 million tonnes delivered. Total Brazilian production looks set to reach a record this season at over 37 million tonnes. However, will the current dry weather, which has allowed the crush to remain in top gear for weeks, compromise the next crop? This week the word drought was used for the first time which might be a bit extreme when it is traditionally dry during the Brazilian winter. Rain is forecast for next week across the cane regions but does not seem to have concerned fund managers as yet. The trade are taking a wait and see attitude.
Several analysts are now predicting a production deficit for the current season bravely predicting global consumption will recover back to their pre-Covid levels. They cite lower production in Thailand, EU and Russia. Lower Thai production has been in the market for some time and the EU production drop looks minimal. Eyes now turn to the up-coming Indian harvest. The cane has been blessed with ideal weather with two consecutive years of above average monsoon rains (first time in 60 years). Production estimates continue to grow with one respected Indian sugar expert seeing 33.5 million tonnes. If this turns out to be the case then some analysts might struggle to find a production deficit. It is also often the case that Indian production turns out the be rather higher than pre-harvest predictions.
Having broken above 14 cents will prices continue to power higher? The funds, who have been the main driver of the rally, could be around 190k lots net long. Historically, this is not huge ( just over 4 years ago they hit 291k lots) but, in these uncertain times, perhaps enough and the rally may stall. However, while Brazil remains dry prices are likely to remain firm.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg
Phone: +44(0) 207 716 8598
Email: admisi.sugar@admisi.com
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