Market Commentary

27/01/20: Sugar Market Morning Report

Good morning,

Friday saw the market drop back ending 18 points lower and at its lowest for seven sessions as a bout of long liquidation was seen as a reaction to the market being over-bought and a lower oil quote. The market had opened unchanged before swiftly improving 12 points to hit the highs of the day less than 30 minutes after the opening. However, that was the extend of the improvement with prices soon starting to slip lower as a bout of profit taking was seen which took prices back to their opening levels. Mid-morning saw some heavier selling appear which saw prices descend some 36 points from the highs as more long liquidation was triggered. There was a small improvement but it was short lived with prices dropping again to hit the lows of the day mid-afternoon. Values did pull slightly off the lows by the close but it was a disappointing settlement being below the 10 day ma which is the first time since the beginning of the month. The HK, unsurprisingly, ended 3 points weaker at +7 while the KN was also 3 lower at +6. In London the HK ended a tad lower at +4.50 while the KQ was a little firmer at +3.90. It was somewhat inevitable that a correction would be seen given prices had rallied some 120 points in the past fortnight. However, the trigger was probably the drop in oil prices due to concerns over a drop in demand because of the Coronavirus which could curb travel. Also the combination of lower oil prices, weaker BRL and higher sugar prices has reminded traders of Brazil’s ability to crank up sugar production if prices rise above the ethanol price.

The COT as of the 21st January showed that the funds/specs had increased their net long position by 30,380 to 111,584. This was probably less than anticipated given to good trading volume seen during the reporting period although prices only improved by 23 points. The non-commercials increased their net longs by 35,006 to 70,991. The commercials increased their net shorts by 42,346 to 363,065 as producers continued to price while end-destination was largely absent from the market. The Index funds increased their net longs by 11,967 to 251,482.

This morning the market opened 5 points lower before dropping another 15 points over the next 10 minutes. Currently, prices are at the lows and looking vulnerable to further weakness. The HK is unchanged at +7 while the KN is down 2 at +4. In London the HK is firmer at +5.00 while the KQ is a little weaker at +3.50. This puts the HH WP at 83.90 and the KK WP at 80.20.The main reason for the weakness this morning is the macro with virtually all commodities lower (apart from Gold) especially crude with Brent crude below $60 its lowest level since mid-October. The BRL also remains weak mainly because of the strength in the US Dollar. Concerns over the Coronavirus is impacting on the financial markets with equity market also dropping over concerns of a global slow-down caused by the virus spreading globally. Therefore, despite concerns over a potential large supply deficit for the current season and perhaps another in 2020/21 the market looks likely to be influenced by other factors in the short term. However, the market is now some 70 points off the highs which has seen the market correct substantially from being over-sold. Currently, it is very difficult to predict how the financial markets will continue to view the Coronavirus but a return to stability would seem unlikely for the time being. Therefore, sugar prices look likely to drop further although 14 cents is likely to see good support. Technical support at 13.99 (mid BB) then 13.79 (previous resistance) then 13.41/40 (double bottom) then 13.02 (lower BB). Resistance seen at 14.42 (10 day ma) then 14.90 (Recent high) then 14.95 (upper BB).

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg

Phone: +44(0) 207 716 8598


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