Market Commentary

11/05/20: Sugar Market Morning Report

Good morning,

Friday saw a shortened trading session in NY while London was closed for a Bank holiday. The market essentially gave back the small gain seen on Thursday but the volume was understandable thin. The market opened 2 points lower before tumbling another 20 points – mainly on the back of a record low for the BRL against the US dollar. Having hit the day’s low about an hour after the opening prices slowly improved and, actually, managed to push into the plus column when the highs of the day were hit some hour before the close. Prices dipped before settlement but eventually closed 4-6 points lower on the day having finished 4-6 points higher on Thursday. The NV ended the session a couple of points firmer at -23 while the VH settled 1 point better at -68. On Thursday London had continued to improve with the QV gaining $2.50 to end at +16.90 while the VZ was unchanged at +4.60. This put the QN WP at a healthy 115.20 while the VV WP ended unchanged at 98.30. The NY market continues to be dominated by the macro and especially the BRL which continues to make new lows – Thursday saw it hit 5.85 against the US dollar although it improved very slightly on Friday to finish the week at 5.74. There seem to be no desire to ‘help’ the ethanol industry in Brazil despite a lot of chatter about increasing gasoline taxes. Understandable, any tax increase is not popular especially in times of dire economic turmoil. To give some idea on the impact the Coronavirus impact is having on the Brazilian economy it was reported that Brazil Car manufacturers produced 99% less cars in April compared with March and sold 68% less cars. Ethanol sales dropped nearly 60% in April compared with March.

The COT report showed that as of the 5th May the funds/specs had cut their net short position by 32,982 to 47,844. The fact the non-commercials cut their net shorts by 19,637 to 54,759 will surprise few given the rally of around 180 points during the reporting period. However, prices have fallen back since so some of the shorter term funds may have sold again. The commercials increased their net shorts by 38,364 to 168,373 as the trade liquidated longs on the rally while there was some evidence of producer selling as prices pushed above 11 cents. The Index funds increased their net longs by 3,882 to 216,218.

Unica is expected to release its harvest date for the second half of April this week. According to a Platts survey total sugar production for the period is estimated to reach 1.76 million tonnes. This would be an increase of just under 70% compared with same period last year. The weather has been good during the period with around 215 mills operating. The amount of cane being used for sugar production is expected to be around 44% ( from just 31% this time last year) which will surprise few given the collapse in ethanol demand and the fair margin in producing sugar for export because of the weakness in the BRL.

This morning the market opened 4 points firmer before improving another 9 points on some light market buying. However, values soon slipped back and are currently holding around 5-6 points better. The NV is 1 point better at -20 while the VH is unchanged at -68. In London the markets is off to a very sleepy start. The QV is a tad weaker at +16.50 while the VZ is unchanged at +4.60. Mixed picture macro-wise this morning with crude 2-3% lower while equity market are generally a little firmer as are most commodities. Sugar will continue to be influenced by the BRL. Given the dire economic information coming out of the country it would seem extremely unlikely the currency will improve anytime soon and may drop towards 6.00. Therefore, sugar is likely to remain within the range with support seen at 10 cents and below but running into resistance at 10.80 and above. For the time being the relative strength of the London white market is having limited impact on the raw market apart from some tentative support. Many regard the strength seen in Q-20 as a consequence that there remains a tightness of deliverable white sugar and this will start to ease later in the year.

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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