Market Commentary

01/07/19: Sugar Market Morning Report

An early attempt to push higher failed when prices were unable to break above the 100 day ma. The market eventually dropped late in the session on a mixture of end of month/quarter book squaring and uncertainty on the N-19 expiry. The market had opening unchanged before slipping into a narrow 9 point range until mid-afternoon when prices started to dip. Values slowly dropped to end the session at the lows. The expiry of the N-19 was fairly quiet with most of the trading already concluded. Total volume was just 4,829 lots with the NV ending at -31. The VH ended 7 points weaker at -93 while the HK closed at -8. In London the QV ended $1 firmer at -5.10 while the VZ was slightly firmer -7.60. The market’s failure to break above the 100 day ma triggered a bout of long liquidation. However, it was a relatively strong weekly close. The N-19 expiry (see details below) had traders scratching their heads for much of the week. How large would the delivery be and would it be bullish or bearish?

The N-19 delivery was the largest ever at 41,500 lots (2.075 million tonnes) and just under 10% larger than the previous record of 37,611 in K-15. There appears to have been four receivers: Sucden, Alvean, ED&F Man and Louis Dreyfus. On the delivery side there was 5 main delivers with one, who many believe was Wilmar, who delivered over 80% of the total. Official delivery data will be released by the exchange this afternoon. So this huge delivery will be translated by some as a sign that there will be some physical supply tightness in the next few months. For others it will be a sign of tepid demand. However, at the end of the day the sugar has moved from one large trade house to other equally as strong trade houses.

The COT report as of the 25th June showed that the funds/specs had cut their net short position by 15,862 to 83,877. This was during a period when the market dropped from 12.83 to 12.48 so it is not too surprising the fund short covering noted earlier in the month was limited. Nevertheless, there appeared little desire to re-establish any shorts. The commercials in-creased their net short position by 19,519 to 152,610 but this was on the basis that there was a large liquidation of the gross long as trade covered positions in front of the N-19 expiry. The Index funds increased their net long position by 3,657 to 236,487.

The Indian Sugar Mills Association issued a statement earlier today saying they see total Indian sugar production at 28.2 million tonnes in 2019/20. This would be around 15% lower than the record production in 2018/19. While there is good reasons why sugar production will be lower their precise figure is odd given the monsoon has only just started after a delayed start. Traders will also remember that their estimate last season started at 32 million tonnes before falling to 28 million tonnes only to end at a record 33 million tonnes.

This morning the market opened 9 points higher before improving a little more before dropping back to opening levels where they remain. The VH is 5 points firmer at -88 but this would seem purely a correction after the spread lost 7 points on Friday. The spread is still 2 points weaker than its close on Thursday. The HK is 1 point better at -7. In London the QV is again a bit firmer at -4.7 while the VZ is a tad weaker at -7.90. This puts the VV WP at 53.40 and the ZH WP at 41.80. It is often the case that trading post an expiry is quiet. The fact that N-19 saw the largest delivery ever may mean more interest from traders but it is likely to be soon forgotten by all but the participants in the delivery. Nevertheless, the downside continue to look limited and, with what is often the weakness month off the board, perhaps prices might improve especially with uncertainty over the Indian monsoon and low sugar production in Brazil. Support seen at 12.69 (mid BB) then 12.62 (10 day ma) then 12.38 (lower BB) then 12.30/29 (double bottom) then 12.04/02 (double bottom). Resistance seen at 12.84 (100 day ma) then 12.93/4/5 (triple top) then 13.01 (upper BB) then 13.08 (double top) then 13.24 (triple top).

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

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