Market Commentary

27/04/20: Sugar Market Morning Report

Good morning,

Friday saw the markets drop again. The relentless weakening of the BRL was, again, the main reason for prices dropping to new lows. The market had opened just a couple of points lower but prices barely managed to break above unchanged before values started to weaken. This was the story for the remained of the day with prices slowly sliding lower to hit the lows of the day shortly for the close. The market did see a slight improvement by settlement but is was a cursory move and cannot disguised the dire situation the sugar market remains in as the Coronavirus savages the world economy. The spot month hit a new low of 9.55 its lowest level since June 2008. Despite this the KN improved 9 points to settle at -8 as the expiry of the K-20 looms with just a week until expiry. The OI dropped to 76,798 lots as of the 23rd April. Another 51,711 lots were traded in K-20 on Friday. Chatter is that delivery will be between 500k and 1 million tonnes with 1-2 receivers and several deliverers but it seems all hearsay at the moment. The NV also improved 3 points to end at -26. In London the QV and VZ were barely changed at +7.00 and -1.30 respectively. This put the QN WP around unchanged at 101.10 as the VV WP at 88.40.

The COT report showed that, as of the 21st April, the funds/specs had increased their net short position by 24,423 to 65,138. The non-commercials continued to increase their net short position by 16,912 to 60,063 as gross longs continued to liquidate position while the shorts continued to increase as the sugar story continues to become more bearish. The commercials cut their net short position by 23,883 to 141,713 with big cuts in gross longs and shorts as the option expiry impacts and traders net off positions with K-20 expiry. The Index funds cut their net long position by 539 to 206,851.

As mentioned above the BRL made a new low against the US dollar hitting 5.59 on Friday as the political turmoil increases in Brazil. President Bolsonaro popularity has slumped recently  and took another blow on Friday when his popular justice minister, Sergio Moro, resigned accusing the President in meddling in law enforcement . Moro is popular with the public because of his firm treatment of corrupt politicians and businessmen when he was a judge. Not only did the currency take a dive but the stock market dropped nearly 10% at one point before ending 5.5% lower. There is growing concern that the popular and respected Economy Minister, Paulo Guedes, maybe the next to resign. All this as the Coronavirus continues to take a heavy toll on Brazil despite Bolsonaro downplaying the crisis. Chatter about impeachment of the President has been mentioned once the pandemic has subsided. It would seem unlikely that things will get better for Bolsonaro in the short term so the BRL is unlikely to see any significant rally for the time being.

Industry officials see sugar consumption in India being hit due to the Coronavirus lockdown and the resulting drop in production and consumption of processed food which often has a high sugar content. Some estimate annual consumption could drop by 1.5 to 2 million tonnes. The country’s sugar consumption has been under pressure over the past year with some believing annual consumption is now only around 24.7 million tonnes compared with the general level of around 26 million tonnes for several years. Therefore, total consumption could fall to 23 million tonnes, its lowest level for seven years. This would also mean that India’s carry-over sugar stocks could increase by over 1 million tonnes to close to 10 million by the end of September. With another bumper cane crop in 2020/21 expected and sugar production likely to jump back to above 30 million tonnes things look bleak for the Indian sugar industry.

This morning the market opened 10-11 points lower again on a decidedly weak macro picture with crude down again and the BRL looking likely to drop again. Prices have improved marginally but remain very weak. The KN is 1 point weaker at -9 while the NV is unchanged at -26. In London the QV is a bit weaker at +6.3 while the VZ is weaker at -1.90. There appears to be no respite for the sugar market at the moment. Potentially a large increase in production from Brazil due to the weakness of the BRL and the slump in ethanol demand. Additionally, a drop in global consumption due to the Coronavirus global lockdown seem inevitable. This combination suggests a further deterioration in prices looks unavoidable and any significant improvement in prices anytime soon unlikely.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Charles Branch, Kevin Watkins, Steven Trigg

Phone: +44(0) 207 716 8598


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