Market Commentary

14/04/20: Sugar Market Morning Report

Good morning,

Yesterday saw NY drop again after the crude production cuts announced by OPEC over the long weekend failed to improve energy prices. London was closed yesterday for the Easter Monday holiday. The market had opened 12 points firmer in line with the macro which was firmer across the board. However, the opening levels soon became the highs of the day as prices soon started to slid. It was not long before values broke below unchanged and continued to drop on good speculative selling and limited scale down trade and end-user buying. Prices hit the lows of the day mid-afternoon over 30 points off from the previous close. The selling did eventually slow which allowed prices to pull off the lows but the gains were very limited and settlement was poor. The KN weakened again losing another 6 points to settle at -12. It would appear the appetite to take delivery is diminishing. The NV ended unchanged at -27. On Thursday London saw the KQ maintain its premium ending at +17.20 while the QV also ended firmer at +9.80. Th OI in K-20 London dropped to 12,136 lots which is still comparatively large given there are just two trading sessions to go until expiry. Yesterday’s move in NY was not particularly surprising given to extent that the market has been following the crude price. In the short term it would seem this will continue.

The announcement that OPEC has come to an agreement over cutting production was greeted, initially, with some optimism. However, it did not take long for simple maths to make most realise that the deal was not likely to have any positive long term impact on prices. Global supply is being cut by 10 million bpd whilst global demand has fallen by about 30 million bpd. Therefore, crude prices may not drop back to the lows seen at the end of March but any significant rally from their current levels looks unlikely.

The COT report showed that the funds are beginning to build a net short position as the sugar fundamental picture turned bearish. The report showed that up to the 7th April the funds/spec increased their net short position by 16,174 to 20,968. The non-commercials are now 32,230 net short as they start to build a short position. However, it is unlikely they will increase substantial – the price downside does look limited. The commercials cut their net short position by 28,320 to 190,518 as end users took advantage of the low prices to fix purchases. The Index funds saw a cut of their net long position of 12,147 to 211,487.

This morning the market opened six points firmer but soon slipped back and prices are, currently, around unchanged. The KN and NV are both unchanged at -12 and -27 respectively. In London the flat prices is around $3 lower as prices catch up with NY’s drop yesterday. The KQ is currently holding its premium at +17.10 while the QV is firmer again at +10.30. There appears to be little reason for flat price to improve too much in the short term. The inability for crude prices to improve and the continuing weakness of the BRL means Brazil’s CS millers are likely to increase their cane split to favour sugar with some analysts expecting around 45% of cane to be used in sugar production. UNICA will release their second half of March crush data today. Although before the official start of the 2020/21 season it is likely to show a substantial increase in the amount of cane used for sugar production. The market looks weak and another test of the 10 cent level seems probable although much will depend on crude prices which are, currently, around unchanged.

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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