Sugar Market Report for 23 June

Good morning,

The market fell further on Friday along with other commodities as the funds continue to liquidate positions. Unlike the previous session when the structure held Friday saw the front spreads in both market weakened to new lows. The market had opened 6 points firmer and continued to improve on speculative short covering after the large loses of the previous session. The highs of the day were reached an hour or so after the opening with gains of over 30 points. However, prices soon started to drop away as further fund liquidation appeared. Prices slipped into the negative column mid-afternoon and never recovered with another bout of fund selling on the close taking prices down to their lowest level since 19^th May and ensuring prices settled just 10 pints off the lows of the day. The NV having held during the previous day’s sell-off slipped 7 points to end at -23 while the VH finished 1 point weaker at -29. In London it was a similar story with the QV dropping over $1 to finish at -13.00 while the VZ was marginally lower at -8.20. The meant the WP ended barely changed with limited interest. The NQ WP ended at 61.20 while the VV WP finished a tad former at 69.10. Friday was another day dominated by the funds who are cutting longs across the agricultural spectrum as the USD continues to surge. From a fundamental perspective there appears to be limited physical near-by demand. The N-21 OI dropped to 124,540 lots as of COB 17^th June. This is 24k lots higher than this time last year when just 250k tonnes were delivered but much lower than the some time in 2019 when a record 2.107 million tonnes was delivered. Currently, it does look likely to be a relatively small delivery but much will depend on the front spread through to expiry.

The COT as of the 15^th June showed the funds/specs had cut their net long position by 6,156 to 237,946 which was probably less than expected as the market lost over 60 points during the reporting period. The non-commercials cut their net longs by 7,693 to 178,363 . Since the report they have increased their liquidation as prices have dropped below 17 cents. Currently, it is likely they are around 130-140 k lots net long and looking to cover more. The commercials cut their net shorts by 17,277 to 441,359 as the trade cut shorts and there was some signs of end-user pricing but it was limited. This the report it is likely end user pricing has increased especially after prices breached 17 cents. The Index funds also cut their longs by 11,120 to 203,413.

As the 2020/21 Indian harvest comes to an end total sugar production has hit 30.66 million tonnes as of the 15^th June. With the monsoon sweeping across the country the last of the mills are likely to have packed up for the season. It is estimated by ISMA that 5.8 million tonnes of the 6 million tonne subsidised export target has been reached with 4.6 million tonnes having already been shipped. ISMA have also reported that ending stocks for the season (end of September) will be lower than at the end of last season when stocks reached over 10.7 million tonnes. Contrary to the view of many demand has not been hit over the past few months due to the pandemic and lock-down. Therefore, ISMA predict stocks maybe up to 2.5 million tonnes less than ending stocks of last season helped by up to a total of 7 million tonnes of exports.

This morning the market opened 1 point lower before dropping another 11 points to make a new low for the move at 11.30 basis the front month. Since then prices have marginally improved and are, currently, around 5 points down on the day. The NV and VH are unchanged at -23 and -29 respectively. In early London trading the QV is slightly firmer valued at around -12.30 while the VZ is a tad weaker valued at -8.50. The macro is a weaker picture again. The USD Index although unchanged is maintaining the strength seen in the USD last week. Crude is slightly firmer but agricultural commodities are, again, lower with grains/soya weaker again with the funds continuing to liquidate longs. Sugar continues to be caught up with the vagaries of the macro. However, prices have dropped over 150 points since the beginning of the month on limited fundamental news. There has been rain across Brazil’s CS but it has been sporadic while the Indian monsoon has got off the a good start but it is early days. Prices may have further to fall if the funds continue to liquidate but a correction is possible before too long but will probably need the macro to improve.