Weekly Sugar Wrap for 26 Feb

This week has seen another volatile time in sugar. Monday saw prices rocket higher with the first 100+ point move for the year and for many months. Brokers of my vintage remember when a 100 point move was seen before lunch back in 2010. In November that year the market dropped 783 points in just two sessions. Nevertheless, the move to just shy of 19 cents basis the front month took most by surprise as shorts were panicked into covering with less than a week to go before the H-21 expiry. As is often the case with these moves the rally soon petered out and this morning with expiry tonight prices are some 140 points off the highs and back to levels of this time last week. The producers have been well priced for many months and especially against the H-21 being between Brazilian CS harvests. End users were forced into pricing and some shorts had to throw in the towel, possibly, due to margin pressure. The open interest in H-21 has steadily come down and now stands at 26,346 lots so a delivery similar to last March seems likely at around 950k tonnes – with chatter it will be made up of Brazilian and Centrals. Most assume the usual trade houses will be receivers. Hopefully, the debate on whether the delivery is bullish or bearish will be limited. The strength of the spot month pulled the rest of the board higher as the funds started to increase their net long position again. Chatter about lower production in Indian (now still at around 31 million tonnes) and dire Thai production and a recovery in global consumption were cited as reasons for the strength although one wonders whether it is a case of the news chasing the market?

As always conflicting opinions and statistics are rife with more than a few predictions more likely an attempt to move the market. Indian exports are a case in point. Some are saying exporters will struggle to ship more than around 5 million tonnes this season due to logistical problem and, more specifically, a lack of containers while other are saying they could, due to current prices, export 10 million tonnes export subsidy or not. The truth is probably somewhere in the middle. With many analysts predicting anything from a 4 million tonnes deficit (ISO) to a small 500k tonne surplus (Green Pool) Indian exports are likely to more than cover any supply gaps. However, there does remain uncertainty over the up-coming Brazilian season. The impact of the dry weather during the second half of last year is unknown and the recovery in crude prices and therefore, ethanol demand is also uncertain. Both could see production drop to rather less than currently anticipated. The EU was still harvesting last year’s beet crop this week in certain places so there is still much uncertainty over this year’s planted area despite easing of pesticide bans in some countries. Finally, the tale of two very poor harvests in Thailand and whether things will improve next season. The weather has, certainly been better, but competition from other crops persists. Whether the improvement in sugar prices will be enough to see the planted area increase to enable a 100 million tonne cane crop remains to be seen.

Much has been written about the start of a commodity bull cycle developing. Goldman Sachs predicted the start back in early December last year and the funds have certainly made their views known building a record long position across the spectrum. However, some words of caution have been voiced recently. Last Friday the UK’s Financial Times warned that ‘caution is warranted’ over the development of supercycles. One of the main drivers has been the early recovery by China from the pandemic with huge amounts of money injected into raw commodities. The FT sees this a temporary as China drives to become more self-sufficient. They are also sceptical that the vaccine roll-out will be the cure all for the global economy. Finally, inflation concerns have been another driver of the jump in commodity prices. The FT sees these concerns as pre-mature and the US Fed will keep inflation under control. There may be more scope for mining as climate change initiatives require metals such as copper, nickel, lithium and cobalt but for commodities that can be grown there has to be concern that it will just develop into the usual boom and bust cycles.

In the short term sugar prices look set to remain relatively firm buoyed by uncertainty. However, it would seem unlikely prices will rally back to the levels seen earlier in the week unless a big weather issue develops or an unseen problem is lurking unnoticed. Consumption, hit by the pandemic last year, should improve as the global vaccine roll-out increases but full-normality would seem many months or more away so any increase if likely to be muted. Therefore, the world seems to have enough sugar. The logistics of getting it to the consumer is the biggest issue.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com