Sugar Market Report for 16 August

The market dropped for the second session running as it continues to consolidate. The market had opened 2 points weaker before quickly recovering and pushed higher over the next couple of hours to hit the highs of the day late morning. However, the buying petered out with prices quickly falling back to around just above 24 cents where some support was initially found before further selling took prices down for the rest of the session reaching the lows of the day shortly before settlement forming a double bottom at 23.70/72 before some late short covering was seen on the close. The VH slipped a couple of points to -24 while the HK was 1 point lower at +127. In London, the VZ continued to strengthen ending at +17.80 with a month before the V23 expiry. The ZH was virtually unchanged at +9.60. The WP continued to improve with the VV WP ending at 167.70 and the VZ at 149.90. The market had the weight of a negative macro which was probably the main reason for the drop yesterday. The unexpected interest rate cut in China points to a continuing slow recovery and the possibility of lower imports including sugar. However, the market remains, essentially, range-bound between 24.50 and 23.30 while the trading volume remains limited.

Brazil’s Petrobras will raise gasoline and diesel prices as of today at its refineries after the increases in International oil prices recently. It will raise gasoline prices by 16.3% and diesel by 25.8%. While the news is positive for Petrobras’ shareholders it is a concern for the Government who are fighting to keep inflation under control. The Central Bank has already said that it will push inflation rates up to 5% from their previous estimate of 4.7%. However, prices for both products are still down year to date. The news should have little impact on sugar production as it is still considerably more profitable to make sugar than ethanol at the moment.

This morning the market opened unchanged but soon dropped. Currently, prices are 11 points lower. The VH is 2 points lower at -26 while the HK is unchanged at +127. In early London trading, the VZ is a tad firmer at +17.90 while the ZH is also firmer at +9.90. This morning the macro is mixed with crude unchanged, grains/soya are higher and the USD Index slightly lower while the BRL weakened to 4.99 yesterday its lowest against the USD since early June. The market quickly broke lower this morning taking out the double bottom which may trigger some light fund liquidation by the short term funds. However, the overall net long position held by the funds suggests they are unlikely to liquidate much more of their longs although this may change if prices drop to below 23 cents. Traders will keep an eye on the weather across Brazil’s CS with a period of rain forecast over the next 10 days which will, undoubtedly, hamper field operations. While a bout of wet weather will benefit the standing cane any prolonged rain will be seen as a sign that El Nino is starting to impact and could cause issues for the back end of the harvest now that over 50 % of the cane has been crushed.