Sugar Market Report for 11 October

Friday saw the market rally to near the highs of the recent range as the macro improved but the trading volume remained muted. The market had opened 3-5 points firmer before improving another 12 points. The market then settled into a  narrow 14 point range for the rest of the morning and early afternoon. Eventually, prices slipped back to unchanged on the day where enough support was seen to be only a fleeting visit. Prices soon started to improve gaining over 30 points over the next hour of trading as the highs of the week were breached which triggered fresh buying. The gains slowed above 20.30 but further buying into the close ensured a strong settlement with the highs of the day’s being recorded during the settlement period. The HK gained 4 points to end at +48 as did the KN which finished at +50. In London the front month continued to improve with the ZH gaining another $1 to end at +4.20 although the HK was slightly lower at +3.00. This meant the HH WP was a little weaker at 68.20 while the KK WP ended unchanged at 75.80. The market’s rally may have been caused by news that Brazil’s Petrobras rained gasoline prices by 6.8%. That would have the impact of raising ethanol parity with some seeing it now above 20 cents. The macro was positive which helped sentiment although the BRL ended weaker at 5.51. The strength of London’s spot month was positive suggesting better physical demand with good block volume seen in the HH WP despite the slight drop.

The COT as of the 5^th October emphasised the lack of trading volume over the past week. Although prices pushed up to the highs of the range during the reporting period it was a unchanged move overall. The funds/specs increased their net longs by 2,520 to 209,059. The fund’s activity remains very limited as the non-commercials cut their net longs by 452 to 162,845. The commercial’s increased their net shorts by 869 to 397,934 as the trade cut both gross longs and shorts. The Index funds cut their net long position by 3,388 to 188,874.

Alvean’s CEO, Paulo Roberto de Souza, said on Friday that India will be important to plug the supply gaps this season caused by the drop in production from Brazil. He remarked that without India filling the gap over the next six months the sugar market would have a serious problem. He said that consumer have been using stocks to avoid paying higher freight rates. These stocks are now getting very depleted and will need to be replenished. Alvean do not see much improvement in Brazil’s CS crop for the next season. They see a total crush of 530 million tonnes and sugar production around 32-32.5 million tonnes as the cane fields have suffered from drought and frosts. They also point out the La Nina may mean less rainfall across the main cane regions. They see Indian raw sugar sales only becoming viable above 21 cents. Currently, more rain is seen for Brazil’s CS over the next 10 days.

The EU has reduced its outlook for sugar stocks. Stocks were seen at 1.2 million tonnes at the beginning of the current season which started at the beginning of the month. They see closing stocks for the season at 1.1 million tonnes. Total production is seen at 15.7 million tonnes which will be 1.2 million tonnes more than last season if the increase is achieved. However, increased production is needed as consumption is also expected to recover following the pandemic.

This morning the market opened 5 points firmer but immediately improved another 16 points on good market on opening buying and, possibly a couple of buy stops being triggered. This improvement has immediately lifted prices through the top end of the range seen for the past month. Prices have now fallen back and are currently around 10 points firmer. The HK is 4 points firmer at +52 while the KN is a couple of points better at +52 as well. In early London trading the ZH has eased a touch valued at +3.30 while the HK is around unchanged at +3.00. The macro is another positive picture this morning with energy firmer and most other commodities higher. The USD Index is around unchanged. The market looks firm and could continue to improve although trading volumes need to improve to substantiate the move. Chatter about Indian sales, low Brazilian production for next season and the need for end buyers to replenish stocks is the main driver. With further Indian sales unlikely below 21 cents this would seem the next target after prices reached 4 ½ year highs in August just shy of this level. Unica should release their harvest data for 2^nd half September either tomorrow or Wednesday which is expected to show a slow-down in the crush as the season comes to an end.