Explore Special Offers & White Papers from ADMIS

Weekly Sugar Wrap for 10 March

The last two months have seen continuing volatility across the market with sugar at the forefront hitting its highest level since the 10th November 2016 as the H-23 contract expired. Elsewhere the Ukraine/Russia war saw the first year anniversary come and go with little change in the situation. The rhetoric has continued but nothing seems to have changed on the ground. The situation remains dire across the country but Ukraine’s spirit seems undiminished while Russian resolve continues to appear to be slowly fracturing. However, Putin looks to remain in control which does not bode well for any swift resolution to the conflict. The broader global economic picture is equally uncertain. The US cannot decide on whether inflation is being beaten or not with bullish sentiment turning bearish seemingly on a daily basis. China has opened up after their Covid restrictions were lifted with limited impact so far. The inflated energy prices continue to cause anguish not only for individuals but also industry. European gas prices have fallen and are now back to level seen in January 2022 thanks to a milder than normal winter and widespread cut in usage. Nevertheless, this has not translated into lower consumer prices… but has, seemingly, allowed the providers to continue to make massive profits. The crude markets have been, essentially, range bound since the beginning of the year with WTI remaining between $72 and $82 per barrel despite analysts predicting prices to improve towards $100.

Sugar has defied logic on occasions but has remained remarkably firm. Nearby physical tightness with consumers reluctant to hold stocks has kept flat price and nearby structure firm in both markets. Both the white and raw sugar March contract expired with relatively small deliveries which would be expected with large spot month premiums. The white sugar was all from India while raw sugar saw virtually all from Brazil with just a small parcel from Honduras. Back in December, raw sugar prices had topped out at over 21 cents before dropping during early January to just below 19 cents as the funds liquidated. However, in late January prices rocketed higher as it became more apparent that Indian production would, indeed, fail to reach earlier predicted levels. Prices initially peaked at just shy of 22 cents before a period of consolidation but then breaking above the level during the final two sessions before the March contract expired. During this time the funds held firm to their longs although the extent of their position remains a mystery as the weekly Commitment of Traders reports have been delayed after a ransomware attack on a significant systems provider cause havoc with many clearers back-office operations in turmoil for several days. The CFTC decided the data provided by clearers could be inaccurate so halted release of their reports. Currently, the reports are running some three weeks behind so traders continue to guess the fund’s positions. During the missing reports the market rallied over 160 points with minimal pull-back so current estimates range between a 200k to 280k lots net long position.

The recent Dubai sugar conference saw the good and great of the industry gather in excellent numbers. The sentiment was generally bullish for sugar. Delving a little deeper and this bullish sentiment may be based on more hope than conviction. However, it is probably true that prices will maintain their historically high levels for the foreseeable future although very few see February’s high being significantly breached. As usual production from the major producers is central to traders’ views.

India has become a very significant exporter over the past few years. Last season saw production climb to a record 36 million tonnes. Early indications suggested 2022/23 production would easily match last season and 6 million tonnes of exports were approved by the Government with another 3 million slated for later approval all duly entered into analysts S&D spreadsheets. However, chatter started to emerge that all was not well with the cane in Maharashtra and Karnataka. Unusually cloudy weather during the latter monsoon had triggered early maturity which has seen the cane flower and yields drop. Total production estimates started to fall although official year on year date continued to show production running ahead of last season. Current estimates are between 32.50 and 34 million tonnes. If the latter is reached and some respected Indian traders believe this is possible then another one million tonnes of exports are likely to be approved. Prospects for next season remain inexact. Much will depend on the monsoon which will start in June. Bullish traders are already suggesting that the monsoon will be poor on the basis of probability after four unprecedented and consecutive average monsoons. Needless to say, there is no current reason to think this will be the case. The development of the El Nino weather phenomenon could impact on rainfall but only recently a US forecaster expects neutral conditions will remain in place until the summer when El Nino may develop but probably too late to have a significant impact on the Indian weather. However, climate change may have the final say.

The overwhelming view in Dubai is that the Brazilian CS 2023/24 cane looks fantastic with the 2021/22 drought a distant memory. The current view is that up to 600 million tonnes of cane will be available and this could produce 37 to 38 million tonnes of sugar. The sugar split is expected to be very high 48% as mills prioritise sugar over ethanol. The ethanol parity level is massively below current levels and with domestic demand limited and corn ethanol production expected to increase by over 35% in 2023/24 that should remain the case throughout the season. Whether these predictions are too optimistic remains to be seen. Port congestion will be an issue in shipping sugar out of the country as shipments compete with Soya exports. The weather is always likely to throw a curved ball sometime or other. Rain, which has been so beneficial to the cane, continues to fall across the region which if it continues could delay the expected early start to the harvest.

Like India, Thai production has started to slow earlier than anticipated. Production was expected to bounce back following ideal weather which followed the drought. However, analysts are adjusting estimates lower, albeit rather less than India, as the harvest enters the home strait. Currently, 11 million tonnes could be achieved but talk of 12 million tonnes looks unachievable now. Nevertheless, the weather is good and soil moisture levels are more than adequate which, currently, bodes well for next season.

There is great uncertainty over production prospects for the next EU beet crop. However, another drop in production is expected as farmers cut their planted area for several reasons. The main being the banning of neonicotinoids pesticides sprays which controls the aphid that spreads virus yellows. Recently, the French government surrendered to the EU and agreed to ban the pesticide earlier than planned. While they have agreed to pay compensation fears are, understandably, that it will not be enough. The Ukraine war has meant other crops compete with beet and the weather was not kind to beet last year. However, the extent of any cut in the planted area will not become apparent until late April.

China’s imports remain a conundrum. Their domestic production is going to be poor this season at around 9.2 million tonnes which suggest imports will need to be north of 5.5 million tonnes. However, high prices are deterring imports at the moment and may continue.

Global demand is expected to increase at around 1.5% during 2023 mainly due to global population growth. However, the cost of living crisis may impact as inflation remains high and people’s disposable income falls. Therefore, the S&D equation for the current season and next remains uncertain. In Dubai, most are still of the opinion that the current season will see a surplus but manifesting itself during the second half. The average surplus prediction is around 2 million tonnes but much will depend on the final figures out of India and Thailand. For 2023/24 things are much more opaque. Currently, the thinking is that a deficit may be seen but it may be best to work on a balanced picture for the time being.

The NY market appears to be yoyoing at the moment albeit near the contract highs. Currently, yesterday’s gains have been erased after a similar move on Tuesday and Wednesday. As is often the case the funds probably hold the key as to what the market does in the short term. Once the CFTC unravel the COT it might show the funds hold a long position of around 230k lots. Given the majority of the position will be in the spot May contract this may represent over half the open interest (391k lots as of 8th March) which will be seen as too top heavy. Conversely, the funds have an excellent average price having rolled most of their longs against a spot month premium of around 120 points. While prices remain at exalted levels they will be under no pressure to liquidate but things could change quickly and a big macro move could trigger their exit. However, a fund sell-off is eagerly awaited by end-users who remain badly priced. They will be hoping the funds come to their rescue as has happened many times in the past. They will also hope that the long term seasonality chart remains true with a sell-off in March. In Dubai, the final day market consensus session suggested that prices will remain between 19.00 and 22 cents for the time being which, for what we know is reasonable. However, the old market adage to ‘expect the unexpected’ may scupper this view.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, and Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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.

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.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

Latest News & Market Commentary

Explore Special Offers & White Papers from ADMIS

Get Started