Market Commentary

04/05/20: Sugar market Morning Report

Good morning,

Friday saw prices improve again adding another 60 points to the rally that started late Tuesday. At the beginning of last week some traders were fearing prices were going to break below 9 cents. However, on Friday the front month pushed above 11 cents momentarily. A mixture of fund short covering and limited producer selling has seen prices settle 180 points up on the week. The market had opened 13 points firmer but soon fell back and actually spent most of the morning trading slightly below unchanged. However, as US traders got to their desks, prices pushed into the plus column and continued to rise throughout the rest of the session culminating in hitting the day’s highs and their highest level since late March. Prices slipped a little just after settlement but it was, nonetheless, an impressive performance. The NV improved 3 points to end at -23 while the VH ended virtually unchanged at -68. In London the QV ended firmer again at +10.30 as the lack of deliverable whites looks likely to extend to the Q-20 expiry. The VZ ended unchanged at +2.80. The QN WP was rather quieter than in the previous session ending weaker at 104.40 suggesting the previous sessions buying may have been fund short covering. The VV WP was firmer at 98.00. There has been several reasons given as to why the sugar market has seen such an impressive turnaround in the less than a week. The COT (see below) sowed the funds had built a reasonable large net short position over the past month (and at a low average price) so it is likely the main buyers have been the funds. The producer selling which kept K-20 under pressure was absent further down the board. The recent flat price trading volume has not been large (185 k lots for a 60 point move higher is not huge) suggesting traders are still being cautious. There are still many unanswered questions. How much will the global lock-down hit consumption, how much sugar will Brazil’s CS produce and whether other producers will be hit by lock-down issues. Of course one simple answer for the rally was that prices had dropped too low and needed to rebalance.

The COT as of the 28th April showed that the funds/specs had increased their net short position by 17,187 to 148,531. During the reporting period the non-commercials had increased their net shorts to 142,102 lots with an average prices that would not have been much above 10 cents. Given the rally since the report date it is likely the funds have covered a fair proposition of their shorts and maybe around 75k lots net short. The commercials cut their net short position by 11,703 to 130,010 as end users continued to prices while producer selling continued to be limited. The Index funds increased their net long position by 5,485 to 212,336 as they cut shorts.

This morning the market opening is a sparky mood with the opening print 17 points lower before collapsing another 16 points. Values have improved slightly since opening but remain around 20 lower at the moment. The volume remains thin which has helped to exaggerate the early moves. The NV and VH are trading around unchanged at -24 and -69 respectively. In London the QV is down at +9.50 while the VZ is a tad firmer at +3.00. The macro is negative this morning with crude and equities lower which has pressurised sugar. It could be argued the gains on Friday were likely to be slightly exaggerated as much of the world including Brazil was closed for May day celebrations on Friday. The funds have more short to cover but will probably only do so if prices push above 11 cents again. The macro is likely to determine whether this is the case. From a fundamental basis it looks as if the market has corrected enough and traders now await further fundamental news.

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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