Sugar Market Report for 28 June

Good morning,

The market traded either side of unchanged on Friday with the Unica report only having a marginal impact on the market while the stand out feature was the continuing weakening of the front month spreads in both NY and London. The market had opened 6 points firmer but soon slipped into the negative column before improving back to unchanged mid-morning. Prices then slipped back to the lows of the day before rallying 30 points as the Unica data was released. However, with pressure on the spot month prices dropped away again only to improve going into the close to settled around opening levels. The NV came under renewed selling pressure as longs exited with the NV losing 10 points to settle at a new low of -41. The OI for N-21 dropped to 45,436 lots as of COB 24^th June with another 43k lots traded on Friday suggesting another sizable drop in the OI will be seen today and the total delivery looking to be small. The VH also lost a couple of points to end at -28. In London the QV also lost just under $1 to end at -19.40 while the VZ improved marginally to finish at -6.40. this meant the NQ WP improved slightly to 55.20 while the VV WP was virtually unchanged at 65.60. Despite positive Unica harvest data (see below) the market continued to be weighed down by the weakness of the spot months in both markets and the continuing negative macro picture. Nevertheless, support is building at 17 cents and below  in the V-21 while there is probably limited nearby selling with Brazilian mills very well priced and prices well below Indian selling ideas.

Unica released their harvest data for the first half of June which showed a total of 35.959 million tonnes of cane was crushed during the period resulting in 2.192 million tonnes of sugar being produced from a 46.25/53.75 sugar/ethanol split. The cumulative crush for the season reached 166 million tonnes which is nearly 22 million tonnes less than last season. 249 mills are crushing down 5 from the same period last season. The crush and subsequently sugar production was less than generally expected (40 million tonnes crush and 2.47 million tonnes sugar). Unica also reported that of the 28 mills which report their agricultural yields the average was 77 m/t down from 85.9 m/t last year – a drop of 8.9%. The crush may have been impacted by the rain during the period but it will have many wondering whether a total of 35 million tonne total sugar production will be achievable as currently predicted by the majority of analysts. It would seem likely total production estimates may start to be adjusted lower before too long.

The COT showed that the funds/specs had reduced their net long position by 35,308 to 184,912 as of the 22^nd June. The non-commercials cut their net long position by 23,272 to 147,925 which was probably in line with expectations given prices fell nearly 90 points during the reporting period although they did improve once the fund selling subsided. The commercials cut their net shorts by 46,482 to 400,077 as trade shorts covered although here appeared to be little in the way of end-user pricing. The Index funds cut their net longs by 11,173 to 215,165.

This morning the market opened 9 points firmer before swiftly improving another 5 points on some early market on opening buying.

With three sessions to go until N-21 expiry the NV is a tad former at -39 while the VH is 2 points firmer at -26. In early London trading the QV is a tad weaker again valued at around -19.60 while the VZ is valued around unchanged at -6.40. The macro is mixed this morning with crude unchanged while the USD Index is lower while most agricultural commodities are higher. The market is caught between weak demand but growing concerns that Brazil’s CS will struggle to produce 35 million tonnes of sugar. The market continues to be caught within a wide trading range but with good support at 17 cents and below a break on the up-side does look more likely but, perhaps, the expiry of the N-21 needs to be seen first.