Sugar Market Report for 19 July

Good morning,

Friday saw the markets rally further as the correction off the lows continued. However, the trading volume remained very underwhelming with under 79k lots traded. The market had opened unchanged but soon slipped 10 points and back into the negative column. The market then settled down into a 18 point range either side of unchanged for the rest of the morning and much of the afternoon with little interest from any quarter. However, the market suddenly sparked into life as a bout of speculative buying appeared which took prices up over 30 points in the space of 10 minutes which included some buy stops being triggered at 17.50. Once the buying was over the market settled into a narrow but higher range through to the close. The VH ended unchanged despite the flat price strength at -39 while the HK was 5 points firmer at +82. In London the Q-21 expiry was a very quiet affair with little volume. The QV eventually settled marginally higher at -19.50 but still a large discount. The VZ was also firmer at -7.50 while the ZH was a tad firmer at -4.80. This saw the VV WP finish unchanged at an uninspiring 64.20 while the HH WP was weaker at 76.50. The market movement was a similar picture to the previous session with a generally quiet market with a bout of speculative buying into limited selling. One could argue that the market is just pushing back into the two cent range seen since the end of April although the bias continues on the up-side with concerns over the state of the Brazilian cane crop still upmost in traders’ minds.

The COT as of the 13^th July showed the funds/specs had cut their net position by 29,321 to 193,554 during a week that prices dropped over 110 points which is probably in line with expectations given the rather poor trading volumes seen during the period. The non-commercials cut their net position by 17,330 to 150,525 but have probably added to their longs since then although not by much given the dire volume. The commercials cut their net shorts by 35,660 to 410,059 as the trade cut shorts and the end users did some pricing but probably not as much as they may have wished given the bounce seen late last week. The Index funds cut their net longs by 6,339 to 216,505.

The Q-21 expired quietly on Friday with the QV ending at a sizable discount of -19.50. There was a total delivery of 1,469 lots (73,450 tonnes) which was the smallest for August since 2016 when just 500 lots were delivered. The two deliverers were Wilmar and Louis Dreyfus while ED&F Man and Sucden Middle East were the receivers. Official exchange data will be released later today. Given the huge discount the spot month was at expiry no-one will be seeing the delivery as anything but neutral to bearish.

Some cold weather is forecast for southern Brazil again over the next three nights but it is not expected to be as cold as a fortnight ago and should miss the sugar regions and cause very limited frost damage. However, traders will be watching the temperature closely but, at the moment, minimum temperature are expected to hold at 4 degrees and above for Sao Paulo.

The market opened 1 point weaker this morning before quickly improving as light market buying appeared. However, once filled prices soon dipped into the negative column. More long liquidation has been seen since the opening with prices, currently, around 15-16 points weaker. The VH and HK are also unchanged at -39 and +82 respectively. In early London trading the VZ is around unchanged at -7.70 while the ZH is also unchanged at -5.00. The macro is a bit of a mixed picture this morning with crude lower while the grains/soya are firmer. The USD index is also firmer at 92.93 its highest level since April the 25^th. The 80 point rally seen over the past two sessions has been on the back of very thin volume which is always a warning sign as to whether the gains can hold. Continuing concerns over the state of the Brazilian CS cane will continue to be the centre of attention as crop development elsewhere seems to be OK with limited weather issues. The cold weather of the next few nights does not seem to be of any great threat but the cane is stressed from the previous cold weather and dry conditions for many months so is vulnerable if the cold temperature extend further north than anticipated. The market has tested the top and bottom of two cent range seen since the end of April over 7 sessions and is now back in the top end of the range but may struggle to make more gains and some consolidation maybe seen early this week.