Market Commentary

17/03/20: Sugar Market Morning Report

During this time prices have dropped over 400 points essentially on the back of the horrendous macro situation caused by the dramatic spread of the Coronavirus across the world and the huge economic impact that it is causing as countries put draconian measures in place to contain the health threats.

Yesterday saw another dramatic collapse in prices as prices momentarily dropped through 11 cents. The market had opened at the highs before immediately dropping 20 points. Prices then continued to slowly erode until around mid-afternoon when some support appeared around 11 cents. Nevertheless, with the equity markets in freefall prices were unable to improve too much and prices settled at their lowest level since September last year. The structure continues to remain weak with the KN managing to settle at a small premium at +3. The NV ended down 1 at -18. In London the KQ remains at a healthy 8.00 premium as did the QV which settled at +5.90.

The carnage seen recently in sugar has been caused by selling from all sectors of the industry as traders and funds take a ‘risk-off’ attitude in these unprecedented times. The last COT showed that the funds and specs had cut their net long position by 57,456 as of the 10th March. It is interesting to note that the funds cut their gross longs by 47,465 lots but increased their gross shorts by just 151 lots emphasising the ‘risk-off’ mentality. The commercials saw the net short position cut by a massive 73,584 lots to 323,540 as end-users took advantage of the collapse in prices by pricing heavily. The Index funds cut their net long position by 16,129 to 272,388.

Despite a positive fundamental picture for sugar with some estimates last month of a production deficit of over 9 million tonnes for the current 2019/20 season the longer-term picture is slowly turning less positive. The collapse of the BRL to over 5.00 has meant ethanol parity has dropped considerably especially given the weakness of crude prices meaning that Brazilian millers are likely to increase their sugar production. Secondly, the dramatic lockdowns in many countries will undoubtedly have an impact on global consumption. Yesterday Czarnikow cut its consumption total by 2 million tonnes due to the Coronavirus pandemic.

This morning the market opened 6 points firmer on the back of a better (or less bad) macro picture. However, prices have dipped slightly since and are currently just above unchanged. The KN is down 1 at +2 while the NV is unchanged at -18. In London the KQ is slightly weaker at +7.40 while the QV a tad higher at 6.20. This puts the KK WP at 97.00 and the QN WP at 90.00. Obviously, it is impossible to see how things play out over the coming weeks and months. Therefore, there is little point in making any price predictions. The market is grossly oversold but it is very unlikely the buyers will return in the short term so technical considerations are probably meaningless. 

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg

Phone: +44(0) 207 716 8598

Email: admisi.sugar@admisi.com

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