Sugar Market Report for 1 March

Good morning,

The market weakened again on Friday as the macro turned decidedly negative although the trading volume dropped considerable as the H-21 contract expired relatively quietly. The market had opened 2-4 points weaker but soon dropped further losing another 20 points swiftly filling the chart gap left on the Monday when prices rocketed higher. There was some residual support at around 16.60 but with many other markets tumbling and the USD improving the slip continued. There was a mild improvement during the early afternoon back to the chart gap but prices fell away over the last 90 minutes of the session to close near the lows and some 107 points off the highs reached the previous Tuesday. The H-21 expired at a 108 point premium to the K-21 but interest was limited. The KN ended unchanged at +60. In London the KQ slipped slightly to end at +14.10 while the QV slipped $1.5 to end at +9.90. The WP was under pressure again with the KK WP tumbling over $4 to 92.40 with good block volume seen again as fund longs covered positions. The KK WP has lost over $16 since the previous Friday. The NQ WP was also lower at 91.60 having lost $12 in value in a week. The strength seen recently was probably unsustainable and there were few buyers once the longs decided to exit.

Provisionally, it is reported that total deliveries against H-21 was 17,500 lots (around 890k tonnes) which was some 100k tonnes less that seen against H-20. The sole receiver was Wilmar, which was probably no great surprise. The largest deliverers were Louis Dreyfus and Sucden who delivered just over half with several other smaller deliverers. Main ports were Brazilian but it is thought Indian, Pakistan, Centrals and Mexican sugars were also delivered. The official delivery report will be released later today by the exchange. The usual debate on whether it is bearish or bullish will start with some saying at 108 point premium more sugar would have been expected to be delivered which is bullish while others say that just receiver could be seen as bearish.

The COT report as of the 23rd February showed that the funds/specs had increased their net long position by 24,515 to 236,589. The non-commercials increased their net longs by 17,954 to 162,672 in a week when the price rallied 160 points. Some were expecting a larger increase of the funds longs. There was only limited fresh buying with the largest change in a reduction in their gross short position suggesting that much of the move was front month driven and the funds are happy to maintain their net longs but not too keen to increase. Since the report prices have dropped but it is unlikely the funds liquidated too much. The commercials increased their net short position by 14,555 to 493,313 but cut both longs and shorts suggesting trade took profits on longs while there was some destressed short covering by producers/trade when prices rocketed to nearly 19 cents. The Index funds cut their net long position by 9,960 to 256,724.

The Brazilian consultant Archer Consulting estimates that Brazilian mills have priced 80.5% of their 2021/22 sugar production which is probably a record amount for this time of the year and some 30% above their pricing this time last year. Archer also estimates that mills have priced up to 25% of their 2022/23 production as well, again much higher than normal. A weaker BRL coupled with stronger prices is the main reason. Needless to say, this will mean that there is probably limited selling above the market if prices were to rally again.

This morning the market opened 9 points firmer before swiftly gaining another 10 points in relatively thin trading with a improved macro picture. The KN is 3 points firmer at +63 while the NV is a couple of points better at +62. In early London trading the KQ is firmer at around +15.00 while the QV is around unchanged at +10.00. As mentioned the macro is positive this morning with virtually all commodities higher as are equities. However, the USD is maintaining its large gains of Friday and is, currently, a tad firmer. The BRL took a tumble on Friday mainly due to the resurgent USD ending the week at 5.60. The market is likely to be quieter than of late in a post-expiry mood. There is now a large chat gap on the 1st month continuation chart between K-21 current level of around 16.69 and the low of Friday in H-21 at 17.32 which is now an up-side target. There would appear little reason for the gap to be filled in the short term but traders will be mindful of the surge in the spot month price shortly before expiry and will be wary of a repeat performance against the K-21 with its expiry nine weeks away.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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