Weekly Sugar Wrap for 5 March

The market has been in a post-expiry mode this week with prices dropping back from the four year highs seen the previous week in front of the March 21 expiry. In the end a total of 893,216 tonnes were delivered with Wilmar the sole receiver. Sugar from mainly Brazil and Central America were delivered but 80k tonnes from three ports in India also made the tape. One suspects more might have been delivered from India without the on-going logistical shipment problems. As usual a short debate was had on whether bullish or bearish before being forgotten. One receiver was seen as bearish but others argued that it suggested limited supplies given the March expired at a hefty premium. This week prices have dropped with a short foray below 16 cents seen yesterday. It does look as if the market is trying to consolidate at current levels. There is a concern that a similar jump in the front month premium could be seen in the lead up to the May expiry with very limited producer selling above the market. Undoubtable end users, who are not well priced, are buying into the recent decline especially as prices approached 16 cents. However, the macro continues to keep prices under pressure.

As is often the case when changes in the fundamental picture are limited the macro dominates. Sugar traders are struggling with conflicting economic indicators at the moment. Crude prices continue to improve and are, currently, at their highest level since middle of January 2020 on the back of continuing optimism that the global pandemic is coming to an end and OPEC is keeping production unchanged through to, at least, April. Conversely, the USD continues to strengthen from, all be it, very weak levels. Currently the USD index is at its highest level since late November as the Fed indicate that inflation may temporary jump as their economy reopens and their labour market accelerates. The Brazilian Real has taken a beating recently on President Jair Bolsonaro’s latest intervention to prevent rising fuel prices dropping to its lowest level against the USD since November and not far from its May 2020 level. However, rising commodity prices and the impact on the Brazilian economy might see the BRL improve. At the moment the strength of the USD appears to be weighing on sugar prices.

The other factor likely to keep sugar prices relatively firm is the continuing chatter about the development of a commodity super cycle. The Fed’s admission that inflation might flare temporarily adds fuel to the bulls argument. We continue to maintain it is too early to call. Nevertheless, it is undoubtable true that certain metals will remain in demand due to climate change policy and the electrification of the world’s car industry. However, does this translate into agricultural commodity joining the cycle? The United Food index rose again in February to its highest level since July 2014 so agricultural commodities are continuing to improve in price but whether this is sustainable remains to be seen. Much of the improvement has been caused by the massive fund buying and there are so who feel there has been an over-shoot which may correct with pressure on prices. It is likely that old fashioned supply and demand will keep certain commodities prices high but as to whether there is a general up-trend remains to be seen.

Sugar prices are likely to remain volatile. Indian exports which were expected to plug any supply tightness elsewhere are being compromised by shipping issues. The up-coming Brazilian CS crop’s prospects are still rather uncertain and until we getting to the heart of the harvest it is unknown whether there has been any serious damage to the cane due to dry weather. Looking further forward global production looks set to increase in 2021/22 but questions over a consumption recovery will continue to make it very difficult to predict future prices.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com