Market Commentary

13/05/19: Sugar Market Morning Comment

Good morning,

Friday saw a volatile day with a large 44 point range on the day as a bout of short covering was unsustainable with prices dropping back to close at the day’s low. The market had opened 5 points firmer but soon settled into a narrow 8 point range for the next 3 hours as traders remained unsure of direction. However, at midday prices broke above the previous day’s highs which triggered some more short covering. The buying became rather more aggressive as the release of the Unica data loomed. Several buy stops were triggered as prices pushed through the 10 day ma and 12 cents which saw prices jump to their highest level since Monday. Somewhat inevitably, once the short covering subsided prices quickly declined somewhat ironically getting back to unchanged just after the release of the Unica data (see below). Further selling took prices down to the lows of the day by the close although settlement was 7 points above the lows of the previous session. The NV ended just 1 point lower at -35 while the VH was 2 points weak-er at -99. In London both the QV and VZ were a tad lower at -4.30 and -8.60 respectively. The short covering rally that took prices over 12 cents would not have surprised too many traders given the oversold nature of the market. However, emphasising the negative sentiment that has enveloped the market recently none of the gains were held with a disappointing end to the day and the week.

Unica released their crush data for the second half of April Friday afternoon. It showed that the total crush was 31.56 million tonnes which saw 1.035 million tonnes of sugar produced. The split was 30.83/69.17. Compared with the same period last year after a month of the new season the cane crush is 24.5% lower while sugar production is 39% lower. It is difficult to see how sugar production will improve enough to get up to the levels predicted by some. Only last week Conab estimated that the CS will produce just over 31.4 million tonnes. With prices languishing under 12 cents production is likely to remain well below 28 million tonnes.

The COT as of the 7th May showed that the funds/specs had increased their net short position by 46,838 to 122,891. This increase will not have surprised many as prices dropped 46 points during the reporting period. Given prices have dropped another 24 points since then it is likely the funds/specs are 140-150k net short. This would suggest they still have more ammunition to sell but are getting close to their limit (around 190k?). The commercials saw their net short position drop by a massive 68,319 to 94,358 as end destination priced into the decline but very much on a scale down basis. There was no producer pricing which means they could be storing up problems come the N-19 expiry if prices fail to improve. The Index funds also saw selling as their net long position dropped by 21,481 to 217,249 as over 25k lots of fresh selling appeared.
The All India Sugar Trade Association has reported that Indian sugar mills have contracted to export 3 million tonnes of sugar since the beginning of the current season. About 2.1 million tonnes have already been shipped which is around 50/50 raws and whites. Top four destinations are Bangladesh, Iran, Sri Lanka and Somalia. Therefore, the government still wants another 2 million tonnes to be exported by the end of September which may be tough given the current price and the Brazilian CS harvest under way.

This morning the market opened a tad firmer. So far an eight point range has been seen with prices, after 45 minutes remaining in the middle of the range at around unchanged. The NV and VH are unchanged at -35 and -99 respectively. In London the QV is slightly weaker at -4.70 as is the VZ at -8.90. This puts the QN WP slightly firmer at 64.70. The VV WP is also firmer at 61.80. While the market still remains over-sold traders will be wary of selling the market. However, if the lows of last week (11.64) are breached then it is likely another bout of fund selling maybe seen. However, as mentioned above, they are, surely, getting close to their position limit especially as prices are already at their lowest level since October last year and well below the average price of the past 14 years. However, there is precious little reason to believe prices will rally too far at the moment with the short term specs seeing any improvement as an opportunity to sell. Therefore, a bout of consolidation maybe seen. Support seen at 11.65/64 (double bottom) then 11.46 (lower BB) then 11.11/11.10 (double bottom). Resistance seen at 11.95 (10 day ma) then 12.34 (mid BB) then 12.73 (100 day ma) then 12.75/76 (double top).

Contact the ADMISI Sugar Desk team: Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg
+44 2077168598

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