Market Commentary

15/06/20: Sugar Market Morning Report

Good morning,

Friday saw further weakness following the macro slump on Thursday but ended the week slightly higher as the market tries to consolidate around 12 cents. The market had opened 8-10 points lower before collapsing another 25 points as sell stops were triggered as the 12 cent level was breached. However, this turned out the be the lows of the day as prices soon started to recover nearly getting back to unchanged by mid-morning. The market then fell into a very narrow trading range as traders awaited the US start. Oddly, prices started to improve in front of the Unica data with prices pushing into the plus column and hitting the day’s highs. However, this was short lived with prices dropping 20 points after the release of the report. Although values did get back to unchanged late in the session they slid back at settlement to end 6-7 points weaker on the day. The NV finished 1 point weaker at -17 while the VH ended 4 point better at -58. In London the QV settled weaker at +15.40 while the VZ was virtually unchanged at +8.30. This put the QN WP weaker at 121.70 and the VV WP at 102.60. The market continues to be tied to the macro although the restraints are loosening. There was a general turnaround in the macro on Friday with some of the losses of Thursday being clawed back. However, it did not look too convincing. The BRL slipped to end at under 5.00 against the US dollar for the first time in nearly two weeks as Brazil’s deaths from the Coronavirus became the second higher in the world after the US.

The COT as of the 9th June showed that the funds/specs had increased their net long position by 22,337 to 31,019. More interestingly, was the fact the non-commercials appeared to be only limited buyers despite the market rallying nearly 80 points during the report period. Although they moved to a net long position they only added 10,280 to be 9,547 net long. Indeed, they did not add to positions at all and only moved to a net long position by the virtue that they liquidated less longs than covered shorts. It would seem the funds are still very much in a ‘risk-off’ mode. The commercials were more active adding 25,741 to be 254,797 net short as producers sold (assuming mainly Brazilian CS Mils) and the trade liquidated some longs. The Index funds increased their net long position by 3,404 to 223,778.

Unica released their data for Brazils CS harvest on Friday for the second half of May. It was as expected with a crush of 42.2 million tonnes producing 2.548 million tonnes of sugar. This means total sugar production for May was just over 5 million tonnes some 68% more than for May 2019. Mills used 47.35 % of their cane for sugar production which is over 12% more than this time last year and is the same as for the first half of May. The ATR also remains some 7% higher than this time last year. Therefore, although as expected, it is bearish and suggests total production will be a new record of over 36.5 million tonnes. Of course, there is a long way to go before then end of the harvest but mills have priced a lot of sugar so there is, unlikely, to be any significant let up in the production unless the weather intervenes.

This morning the market opened 12-14 points weaker on a weak macro. Prices did initially improve from the opening levels but have now slipped back and remain around opening levels and lows of the past week. The NV is 4 points firmer at -13 while the VH is unchanged at -58. In London the QV is slightly weaker again at +15.00 as is the VZ at +8.00. There is a sea of red across the commodity and equities market this morning so unsurprising that sugar is weaker. Crude WTI is over 4% lower and it is expected the BRL will slip again today. If this is the case then sugar prices are likely to come under pressure with limited buying seen below the market. However, the funds seem happy to remain with a reduced position so they are unlikely to sell aggressively so perhaps the market continues to try to consolidate within a range of, perhaps, 11.50 to 12.20.

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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