Weekly Sugar Wrap for 23 April

The market has continued to improve over the past week adding just under another 50 points to the rally that started at the beginning of this month and breaching the 17 cent level yesterday. It would appear the main buyers have been the funds who added nearly 17k lots to their net long position bring their total position to 117k lots as of the 13th April. Since then they could have added another 25k lots but still have a lot more ammunition to buy more. However, it is surprisingly the trading volume has dropped away recently. Very good volume was seen as the funds rolled positions earlier in the month but for the last couple of days volume has been underwhelming to say the least. Additionally, unlike the rally in February, when the spot month went off the board at a massive 108 premium the May-21 ended at just a 4 point premium yesterday. With 6 trading sessions to go before expiry it looks as if the delivery will be relatively small with the K-21 open interest currently at 69,280 lots compared with just over 101k lots at the same time last year when 2.2 million tonnes were delivered – a record for a May expiry. The structure in London is also weakening with the Oct/Dec going to a small discount yesterday. This has also put pressure on the White Premium which has also slipped recently.

As mentioned above the funds have returned to buy sugar after cutting a sizable amount of longs. At the beginning of January they had built a net long position of nearly 183k lots. Their appetite for all agricultural commodities has increased considerable recently after a period of profit taking when concerns over surging cases of the Coronavirus especially in Europe caused them to reassess the situation. While there has been little marked improvement in the control of the virus with Brazil continuing to struggle massively and a recently enormous surge in cases in India the vaccination programme in the US has allowed their economy to reboot as the country comes out of lock-down. Concerns over a rise in inflation and good demand from China has seen the funds buying again. Weather issues are also having a marked impact on grains and soya.

Sugar traders are also concerned about weather issues. The main concern being the Brazilian CS cane crop. The harvest of the 2021/22 crop is underway, officially, as of the beginning of April. There has been growing anxiety over the cane due to dry weather over the past six months. Earlier this week a Wilmar analysts predicted the cane crop will be considerably smaller at around 530 million tonnes compare with 605 million tonnes last season. They, therefore, see sugar production at between 31 and 33 million tonnes well below the general consensus of around 35 million tonnes. The dry weather has, undoubtable, impacted on the cane but whether Wilmar’s prediction turns out to be correct only time will tell. At the moment most believe production will be not as bad but this could quickly change. The plight of EU sugar beet growers especially in France has also added to the bullish mix. While the French government has pledged $1 billion Euros to help their farmers it remains to be seen how much of the impacted areas are replanted. Interestingly, Farmers Weekly believes sugar production in the UK may increase by 100k tones over last season to 1 million tonnes despite earlier chatter to the contrary. The planted area will be smaller but the yields will be better according to the publication. However, there is a long time to go until harvest and it is, unseasonably, dry in many parts of the UK at the moment.

India continues with its 2020/21 harvest and, by now, might have passed 30 million tonnes of production having reached just over 29.1 million tonnes by the middle of April. The season is now winding down with 170 million still crushing as of the 15th April. Therefore, it is likely total production will exceed 31 million tonnes which has been a fairly constant estimate since the season started. With an average monsoon predicted for this year next season’s production is unlikely to be any less. There has been some conflicting reports over consumption in India due to the huge surge in Coronavirus cases. Some believe that consumption will remain subdued at around 25 million tonnes while ISMA say they have seen no particular slow down and demand was 20% higher in March compared with a year earlier. However, the summer and wedding season is now coinciding with the huge jump in Coronavirus cases so there is likely to be some impact over the next few months. On the export side it is estimated at around 83% of the subsidies 6 million tonnes of exports have been sold which is a fine achievement given the late announcement of the subsidy policy. If prices remain firm then India may be able to export more without subsidies. They certainly have the stocks to do so.

The market is holding firm this morning in a nervous mood just under 17 cents. Traders await the next Unica harvest data for the first half of April for some indication of how the season’s crush has started. It is, likely, to become volatile over the next few weeks as the market takes a view on total Brazilian production. At the moment a small surplus for next season is still being pencilled in by many (Citi bank revised their estimate down to 2.2 million tonnes recently taking into account the dry weather in Brazil). It remains to be seen whether analysts will start to talk deficits before long. The pandemic continues to make predictions very tricky.