Weekly Sugar Wrap for 24 September

Over the past three weeks the markets have remained volatile. However, NY has remained within a cent range with fundamentals supporting prices while the macro added the unpredictability. The funds have, generally, been in a liquidation mood probably seeing a limited up-side for the time being especially as the spot month continues to trade at a sizable discount to the rest of the board. The market has built support around 19.50 (basis H-22) which is probably just above Indian Mills break-even. The market did manage to rally towards 20.40 but has struggled to push higher and challenge the 4 ½ year highs reached in late August. The lack of physical demand is probably the main reason for the stalling of recent rallies. London saw the expiry of the V-21 with the smallest delivery since 2015 at 124,800 tonnes with ED&F Man the sole receiver all from India. The V-21 NY expiry is now quickly approaching with a small delivery also looking likely. With five trading sessions to go the V-21 OI is probably around 65k lots. Chatter is just one receiver (but likely to be more) to get mostly Brazilian sugar.

 

On the fundamental front it has been quiet. The Brazilian CS harvest continues with traders and analysts remaining cautious. The last Unica report for second half of August surprised some in that the crush and sugar production was a tad higher than most expectation and above the same period last season’s bumper production. However, cumulatively, the crush is running around 6% down on last season while sugar production is over 6.5% lower. The market awaits Unica for first half September which will probably appear on Monday. The harvest tail is expected to be short this year with the harvest over, bar the shouting, by the end of October. There has been precious little rain across the CS this month adding to concerns for the next cane crop. However, some heavy rains are forecast over the coming 10 days which could start to be beneficial for the cane although a considerably amount more will be needed to elevate the very low soil moisture levels. La Nina continues to lurk ominously which may impact on rainfall levels through until the New Year.

 

The next Indian cane harvest is now weeks away and all is looking good. Monsoon rains have picked up this month after patchy rainfall during July and August. It should mean a slightly late finish to the monsoon and total rainfall close to the 50 year average. This will mean an unprecedented average or above average monsoon rainfall for three consecutive seasons. This not only bodes well for this season but should ensure a bountiful cane harvest for 2022/23. Currently, even with more cane being diverted to ethanol production most analysts see 31 million tonnes of sugar being produced if not slightly more. This could mean a 5 million tonne surplus over domestic consumption. Currently, it is estimated that Indian mill’s break-even for raw sugar is around 19 cents. Additionally, domestic prices have recently reached a new 4 year high mainly because of the festive season making domestic sales more attractive although once the next harvest starts local prices are likely to fall back.

 

Elsewhere there has been little change in crop prospects. Thailand has received better rains during the past few weeks and could reach 100 million tonnes of cane. Across the EU things are mixed. The like of France, Belgium, and Poland are seeing beet yields similar to their 5-year averages while Germany and Netherlands are expected to see higher than average yields while Italy will be down on average. Overall, MARS forecast beet yield to reach 75 t/hectare which is unchanged on their August estimate.

 

The drop in Brazilian sugar production probably means a deficit in global production next season. However, scientists have been giving their crystal ball a good polish and have predicted that by the end of the century sugar production across the globe could have dropped by nearly 60% due to global warming and climate change. They see catastrophic production collapse of other crops in 75-80 years’ time. Fortunately, most of us will not be around to find out whether these prediction become true. It might also be the case that by then sugar consumption will have been banned!

 

In the rather more short term the market continues to be buffeted by the macro which took a thump earlier in the week on concerns over the precarious financial predicament that the Chinese property company, Evergrande, found itself. Concerns it might be the tip of the Iceberg which could cause serious damage to the Chinese economy spooked traders although by the end of the week most had convinced themselves that the government would not let things get out of hand. Notwithstanding the macro, sugar fundamentals suggest prices are well supported from a trade perspective while the up-side is hampered by the heavy contango of spot in NY. Perhaps once the V-21 expires and it is another six months until the next expiry the market might test the 4 ½ year highs seen in August. With the spot month at a premium it may persuade to funds to reinstate longs. If not then we might continue range-bound.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, and Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2024 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.