Market Commentary

13/01/20: Sugar Market Morning Report

Prices rallied just over 40 points on Friday settling at its highest level since the 25th October 2018 on heavy and persistent fund buy-ing. The market had opened a couple of points lower before swiftly dropping another six points on some light market-on-opening selling. However, this turned out to be the low of the day as, within 10 minutes, prices were back in the plus column. Prices then settled into a nervous six point range for the next couple of hours before starting to improve again as more at market buying start-ed to appear. Some resistance was noted around the previous high (13.79) but once breached prices continued to climb as more fund buying appeared. The psychological 14 cent level was tested and broken fairly quickly but a bout of speculative long liquidation took prices down 10 points before another wave of fund buying improved prices again. This time the 14 cent level was convincingly breached hitting the day’s highs shortly before settlement. Prices did slip a little on the close on some light day trader profit taking but it was the highest settlement on the front month since 12th Jan 2018 (when prices were heading lower). As to be expected the HK improved moving to a premium in early trading hitting +4 around the same time as the flat price hit 14 cents. By the close it had dropped back to flat. The KN also ended 6 points better ending at flat having hit +1 earlier in the session. In London the HK finished firmer at -2.90 while the KQ was also firmer at -0.50. The market’s recovery on Thursday after the macro inspired sell-off on Wednesday appeared to pave the way for the rally seen on Friday. The funds seem to finally get off the fence and start to aggressively buy on Friday. Good producer selling noted, especially above 14 cents, but the fund buying was pretty relentless after the previous highs were breached.

The COT as of the 7th January, now somewhat of an irrelevance given Friday’s action, showed the funds/specs had cut their net long position by 7,432 to 23,241. More importantly, the non-commercials (managed money funds) actually increased their net short position by 10,665 to 21,223 for the second time in a row much to the surprise of most traders and analysts. During the reporting period prices dropped 30 points before ending 17 points up on the reporting period. Given Friday saw the largest trading volume for many months (350k lots in total) it would suggest the funds are currently over 20k lots net long. The commercials cut their net short position by 4,137 to 255,969 with both end-user and producer selling noted. The Index funds increased their net long position by 3,296 to 232,729.

The Thai harvest continues to lag well behind last year’s cane crush. As of the 7th January the total crush was 28.47 million tonnes 19% down on the same date last season. White sugar production is down 12.32 % at 531,404 tonnes while raw sugar production is 21.1% lower at 2.130 million tonnes. The start of the harvest was delayed this season but it still looks as if total sugar production will be well below last season’s total with some believing it could drop by 2.5 million tonnes.

This morning the market opened 2 points firmer before quickly dropping 5 points as the usual market-on-opening selling appeared. Once completed prices improved back to opening levels where they currently remain. The HK is 2 points better at +2 while the KN is 1 point better at +1. In London the HK is firmer at -2.10 while the KQ is just shy of flat at -0.2. Further gains in the flat price today suggest the front spreads in London will go to a premium. The HH WP is, unsurprisingly, firmer at 67.00 while the KK WP is at 69.70. The strength of the WP is more a consequence of the rally in the raw’s flat price than any significant shift the fundamental view of the WP. Nevertheless, a drop back to the lower 60’s will, now, be seen as a buy. After Friday’s action the market looks set to make further gains assuming the funds continue to add to their net long position which would seem likely. Producer selling is in place of a scale up basis. Indian interest has been noted as prices pushed higher but Brazilian selling appears more limited as prices remain well under ethanol parity. Technical support seen at 13.79 (previous resistance) then 13.61 (10 day ma) then 13.52 (mid BB) then 13.41/40 (double bottom) then 13.10 (recent low) then 13.05 (lower BB). Resistance seen at 14.12 (Friday’s high) then 14.20 (double top) then 14.64 (Feb-19 high).

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

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