Market Commentary

01/10/19: Sugar Market Morning Report

Yesterday saw prices jump to their highest level since 14th August but the gains failed to hold with the market ending just 3 points firmer. The V-19 expired with the smallest October delivery for 8 years (details below). The market had opened un-changed but soon started to improve aided in part by the strengthening of the front spread and the growing realisation that the V-19 delivery was going to be considerably smaller than had been anticipated a week earlier. Prices flirted with last week’s highs around mid-morning but failed to breach the resistance initially. However, once US traders were comfortably at their desks an-other attempt to break above the triple top at 12.70-72. This time it was successful with the inevitable buy stops triggered which took prices up over 12 points in less than 1 minute. Values gained another 4 points but the buying eventually dried up and a bout of day trader long liquidation took prices back down to below the previous resistance in a disappointing performance for the bulls. The V-19 pushed into the plus column in early trading where prices remained for the rest of the session ending 39 points firmer. The VH also improved to hit -73 in late trading where it settled. The HK slipped 1 point to end at -9. In London the ZH im-proved yet again by $1 to -1.10. The HK ended a tad weaker at -3.70. It was a bit of a non-event day with the early afternoon gains unable to hold as the expected fund short covering failed to materialise in any decent volume. However, with the funds still heavily short and the next expiry six months away it is still likely the up-side looks more appealing than the downside especially with chatter about a 5 million tonnes or more global production deficit next season. Only the small issue of 6 million tonnes of Indian stocks that need to be sold in the way.

The V-19 expiry saw around 175,000 tonnes (3439 lots) delivered. Wilmar was the sole receiver with Man, Sucden and Enerfo thought to be the three deliverers. Origins were thought to be just made up of Central American raw sugar. The ICE exchange will release the official delivery data later today. As mentioned above this was the smallest October delivery since 2011. The absence of Brazilian sugar in the tape will be seen as supportive.

India has received 10% above average monsoon rains in 2019 for the first time in six years. In fact it is the highest rainfall in 25 years and is likely to continue to increase as the monsoon season has continued much longer than normal. Indian sugar cane farmers have had a very trying season with exceptionally dry conditions before the monsoon rains arrived late only to then suffer flooding as excessive rains arrived. Currently, analysts are expecting sugar production to fall significantly in 2019/20 because of these issues. General consensus is that production will struggle to reach 28 million tonnes down over 15 % from this season’s 33 million tonnes. It should be remembered that this time last year analysts were also talking sub-28 million tonne production. While it is highly unlikely that production will be unchanged it is probably wise to take a cautious view until the harvest gets well underway.

This morning the market opened unchanged but prices immediately improved gaining around 12 points where they currently remain. The HK is 1 point better at -9 while the KN is also -9. In London the ZH is a tad weaker at -1.50 while the HK is a little firm-er at -3.50. This puts the ZH WP at 65.30 and the HH WP at 66.50. Despite yesterday’s somewhat false start with prices failing to hold the gains it does look likely another attempt to push higher will be seen. Whether this triggered more aggressive fund short covering remains to be seen. The market is getting, technically, over bought so perhaps some consolidation will be attempted before another push higher. Support seen at 12.41 (10 day ma) then 12.19 (mid BB) then 11.92 (recent low). Resistance seen at 12.80 (upper BB) then 12.85 (double top) then 12.91 (100 day ma) then 12.98 (double top) then 13.25 (July high).

Contact the ADMISI Sugar Desk team:
Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg
Phone: +44 2077168598 | Email: admisi.sugar@admisi.com

ADM Investor Services International Limited is authorised and regulated by The Financial Conduct Authority Member of The London Stock Exchange. Registered office: 4th Floor Millennium Bridge House, 2 Lambeth Hill, London EC4V 3TT. Registered in England No. 2547805 a subsidiary of Archer Daniels Midland Company. Risk Warning: Investments in Equities, CFDs, 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 indeed may incur additional liabilities. These Investments may entail above average financial risk of loss, and investors should therefore carefully consider whether their financial circumstances and investment experience permit them to invest and, if necessary, seek the advice of an independent Financial Advisor. Some services described are not available to certain customers due to regulatory constraints either in the United Kingdom or elsewhere.