Weekly Sugar Wrap for 25 June

The past two weeks have not been particularly exciting with both sugar markets weakening to their lowest level since the end of April before improving over the past couple of sessions with prices, currently, not far from the middle of the range seen over the past two months. Trading volumes improved, as expected, during the fund roll out of July 21 but recently they have become rather lacklustre again. The stand out feature has been the weakening of the spot month against the rest of the board in both NY and London. Both are now seen as around carry with NV in NY at 31 point discount and the QV in London at a $18 discount. Obviously, this suggests that, currently, physical supply is ample meeting with limited demand. The structure suggests that supply will remain adequate through to the end of the year. The overall weakness has also impacted on the White Premium with the July/August and Oct/Oct well below refiners’ costs. Looking down the board WP values only start to look interesting from a refiners point of view well into next year.

The market eagerly awaits the release of the Unica harvest data for the first half of June for Brazil’s CS which is scheduled to be released later today. It is expected to show that the crush and sugar production is slightly lower than same period last season when record sugar production was hit. There has been continuing concerns over the state of CS cane crop after months of below average rainfall. There has been some reasonable amounts of rain over the past few weeks which has been beneficial where it has fallen. However, to suggest it has boosted production prospects would, probably be, optimistic and most believe the rain may have stopped a further deterioration in the cane. Nevertheless, most analysts are happy to keep their total sugar production at around 35 million tonnes for the time being. The sugar/ethanol split has, as yet, not started to slip as some had predicted and the amount of cane being allocated to sugar production remains around 46.5%. Copersucar see the split remaining between 45-46% as mills are unlikely to buy back futures sales to allow more ethanol production as, unless prices fall to below 15 cents, they will lose money on any buy-backs.

The India monsoon has continued its excellent start this year. Having hit the South-West coast just after the start of June it has made steady progress across the rest of the country allowing Indian farmers to plant their usual myriad of crops. The cane planted area looks set to increase slightly over the past two seasons promising sugar production over 30 million tonnes despite the Government’s plans to substantially increase ethanol production so that the target of adding 20% to Gasoline by 2025 is reached. Czarnikow have suggested in a report that by 2025 India will be more balanced in the sugar production compared to their internal consumption as the country’s ethanol policy sees more cane being diverted away from sugar. This should mean the export subsidy will become unnecessary as sugar production falls to an average production of 27 million tonnes per year which is likely to match internal consumption. This, in turn, will mean the world sugar market will become less well supplied and, therefore, more vulnerable to price shocks due to weather issues. However, the big caveat is whether India can achieve the ambitious target of 20% ethanol blend in gasoline by 2025. There are many hurdles to overcome and few are seeing any materialist impact on the sugar production next season with most analysts seeing another 30+million tonne production.

Thai production is expected to bounce back from the very poor 2020/21 season when the total cane crush only reached just under 67 million tonnes the lowest in over 10 years. Current estimate vary from 75 – 95 million tonnes of cane. A senior Thai industry official is reported to have said earlier in the week that cane output should recover to around 85 million tonnes with higher yields thanks to better rainfall and the guaranteed prices of TBH 1,000/MT (around $31.65/MT). Time will tell but a good monsoon between July and October will be needed and the good start to the Indian monsoon is hoped to extend across the rest of the region.

Apart from the weaking of the structure in Sugar the macro has played a large part in the flat price weakness seen late last week and into this week when prices dropped through 17 cents and down to close to Brazilian ethanol parity. It did seem odd that the Fed’s suggestion they may put interest rates up but not until 2023 would have such an impact on the USD. The USD Index rallied over 2% over the course of three days hitting its highest level since early April. On the back of this strength virtually all commodities fell. Grains/Soya were particularly hard hit with corn taking the biggest tumble as the USD strength coincided with better weather prospects across some US grain regions. The funds, who had been, slowly, trimming longs, became more aggressive sellers which included sugar. Next Thursday sees the expiry of the July 21 contract. Currently, the large discount and low open interest suggests the delivery will be small and similar to last year’s 254k tonnes. Looking further forward the Brazilian CS saga has, surely, more to run. However, for the time being analysts are still seeing a small 1-2 million tonne surplus for next season and, consequently, the recent price range of 16.50 – 18.00 cents would seem reasonable