Sugar Market Report for 12 July

Good morning,

The market dropped for the fourth consecutive session on Friday as the funds continued to liquidate longs. The market had opened 12 points weaker on follow-through selling after the weak close the previous session and a generally negative macro picture. Prices did soon improve pushing up 13 points to, what turned out to be the highs of the day with the market soon back to opening levels where they remained caught in a narrow 10 point range for the rest of the morning. However, as US traders got to their desks prices slipped again on some light fund selling to hit the lows of the day and over 130 points from the highs reached just six sessions earlier. The market remained in the bottom end of the range through to settlement when prices did improve slightly on some day-trader short covering to allow prices to end near the middle of the day’s range. The NV lost ground yet again to settle 5 points weaker at -38 while the HK also weakened by 8 points to finish at +73. In London, with a week to go before the Q-21 expiry the QV weakened over $3 to end at -27.90. The OI fell to 14,167 lots with another 5k lots traded on Friday continuing to point to a small delivery. The VZ also ended a tad lower at -9.60. This saw the VV WP end $1 lower at 64.70 while the HH WP finished slightly firmer at 78.60. It was another weak performance in both sugar markets with the spot month weakness and continuing fund liquidation continuing to weigh on the market.

The COT as of the 6^th July showed the funds/specs increased their net long position by a larger than expected 32,456 to 222,875 during a period when the market improved by 126 points hitting their highest level since February. The non-commercials increased their net longs by 19,646 to 167,855 as they bought into a market with limited selling. However, since the report prices have dropped by 115 points which would suggest the non-commercial have liquidated the vast majority of these longs and are possibly around 150k lots net long. The commercials saw a big increase with the net shorts increasing by 38,156 to 445,719 as the trade sold – perhaps suggesting some Indian sales when prices pushed up to near 18.50. The Index funds increased their net long position by 5699 to 222,845.

Unica will release their harvest data for the second half of June this afternoon at 15:00 (London time). Same period last year saw a crush of nearly 43 million tonnes of cane resulting in sugar production of 2.73 million tonnes from a split of 47.42/52.58. The data will be eagerly awaited by traders. It is likely the crush will be down on last year and, perhaps, slightly higher than the 36 million tonnes and 2.2 million tonnes seen during the first half of June. The agricultural yields will be looked at closely as an indication of the impact on the dry weather is having on the cane. Unica is also likely to make some comment on the extent of the damage the cold weather of early July had on the cane.

Czarnikow said last week they have lowered their cane production estimate for the 2021/22 Thai harvest by 6.3 million tonnes to 93.70 million tonnes due to competition from cassava. This mean fewer farmers than expected planted cane instead of casava between March and May. However, Czarnikow see sugar production reaching 10.3 million tonnes up 2.74 million tonnes from 2020/21.

This morning the market opened 4 points lower before dropping to the low of Friday where some initial support was found. However, prices have subsequently dropped further and are now around 14 points weaker. The VH is 1 point weaker at -39 as is the HK at +72. In early London trading the QV is a tad firer at -27.50 while the VZ is unchanged at -9.60. The macro is mixed this morning with crude lower while grains/soya are generally slightly firmer. The USD index is also slightly higher. The market looks set to remain under pressure although the Unica data may have an impact later today. However, the funds continue to sell and it is difficult to imagine they will suddenly turn buyers even with bullish news from Brazil. The weakness of the spot months in both market continues to weigh on the markets although this is seen as a consequence of the very high freight rates seen currently with buyers keener to use up existing stocks. This maybe storing up issues later in the year when physical supplies may become tighter due to a drop in available Brazilian sugars.