Market Commentary

03/06/19: Sugar Market Morning Comment

Good morning,

Friday saw prices jumped to their highest level since the 10th May and more significantly the highest settlement since 2nd May but still failed to breach the 12.15 recent high. The market had opened 3 points weaker before slowly sliding 13 points further throughout the morning to hit the day’s low just after mid-day. Nevertheless, the lows seen earlier in the week held and this triggered some light day-trader short covering. This short covering became more pronounced as US traders got to their desks as the BRL continued to improve and agri commodities also rallied improving the macro picture. Prices continued to steadily improve for the rest of the session to settle at the day’s highs and some 34 points firmer on the day. The NV ended 11 points better at -33 as the speculative short covering in the N-19 impacted the spread. The VH also improved on short covering ending 9 points better at -91. In London the QV ended around unchanged at -5.30 as did the VZ at -9.10. In hindsight a short covering rally was on the cards throughout the week as prices probed the 12 cent level. The improving BRL and week and month end was enough to see the level easily breached especially as it was expected the COT would show another increase in the fund’s net short position. The key now is whether the rally can be sustained.

The COT report as of the 28th May showed that the Funds/specs cut their net short position by 2770 to 183,962. However, the non-commercials increased their net short position by 3,705 to 195,461. The last time their held a similar short position was early September last year. This eventually triggered a large 440 point short covering rally in October. Whether a similar move is seen this time remains to be seen. The very small net short position currently held by the commercials is probably the key. The report showed they had cut their net short position by 1,659 to just 20,181. This is their smallest net short position for over 10 years. The producers are very poorly priced and will be hoping for an aggressive fund short covering rally preferably before the N-19 expiry as they still have good volume to price. Of course the funds will be well aware of the producer’s predicament. The Index funds cut their net long position by 4,429 to 204,143.

This morning the market opened 3 points firmer but immediately saw a bout of speculative selling which swiftly saw prices drop, at one point, 17 points from the opening level. Prices have now pulled off the lows but are still 7-8 points weaker. The NV and VH are unchanged at -33 and -91 respectively. In London the QV is slightly weaker at -5.70 while the VZ is, somewhat surprisingly, $1 firmer at -8.00. This puts the QN WP at 63.70 and the VV WP at 62.00. Whether the first settlement above 12 cents since 3rd May will trigger further fund short covering is probably going to be determined by the macro. Currently, agri commodities are slightly firmer but crude is lower again and just above February lows. Nevertheless, it was a positive close on Friday and with the down-side looking decidedly limited fund managers may decide to cover and deploy their cash elsewhere. Support seen at 11.78 (10 day ma and mid BB) then 11.50 (lower BB) then 11.36 (May low) then 11.11/10 (double bottom and September low). Resistance seen at 12.08 (upper BB) then 12.13 (short term double top) then 12.15 (recent high) then 12.63 (100 day ma).

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