Sugar Market Report for 25 October

Good morning,

Friday saw an inside day as the market continued to consolidate after the drop seen earlier in the week. However, interest was limited with trading volume just creeping over 72k lots. The market had opened 9 points firmer before improving another 12 points over the next 90 minutes to hit the highs of the day. However, this early buying soon dried up with prices soon falling back to unchanged by the time US traders got to their desks. The market slowly improved over the course of the afternoon but interest was limited. Eventually, the market settled higher on the day with another higher low for the third session which might suggest prices can improve further. The HK ended 3 points firmer at +34 while the KN was 5 points better at +29. In London the ZH dropped to end at +5.70 as did the HK which ended just above flat at +0.20. This meant the HH WP ended slightly weaker at 74.30 while the KK WP was virtually unchanged at 81.50. It was a rather uninspiring session as traders seem unsure of market direction. There was, again, little sign of fund activity suggesting they are done with their selling for the time being unless the lows of last week (18.82) are broken.

The COT as of the 19^th of October showed that the funds/specs had cut their net long position by 51,116 to 158,311 which was probably around expectations after the market dropping 125 points during the reporting period. The non-commercials cut their net longs by 33,515 lots to 126,148 after they sold aggressively on Monday and Tuesday. Interestingly, not only did they cover longs but also added fresh shorts. They have now reduced their net longs down to a level not seen since 22^nd June when they held around 147k lots of net longs. Then the market was back at 16.30. This might suggest limited further selling for the time being. The commercials cut their net short position by 51,772 to 345,654 as trade covered shorts on the price slide. This may have also included some producer buy backs although the majority of Brazilian sales are below current levels. The Index funds also cut their net longs by 656 to 187,342.

This morning the market opened 7 points firmer before immediately gaining another 8 points on some decent market on opening buying mainly on the back of a positive macro picture. However, after the initial improvement prices have fallen back into the negative column with prices, currently, around 2-3 points lower. The HK is 1 points firmer at +35 as is the KN at +30. In early London trading the ZH is a tad firmer valued at around +6.00 while the HK is unchanged at +0.20. As mentioned the macro is firmer across most commodities with crude and distillates higher. Grains/soya are also firmer while the USD Index is virtually unchanged. The market remains difficult to read at the moment. All the bullish news regarding the Brazilian CS cane is well embedded in the market. The recent rains are continuing with more rain forecast for the entire region over the next 10 days continuing to help build soil moisture levels again. However, the damage done after months of dry weather is expected to impact on the cane no matter how much rain received over the next 6 months with currently sugar production estimates for next season only marginally higher than the current harvest. In the short term the market looks set to try to consolidate at current levels but traders will be wary of another bout of fund selling which could take prices to new lows again.