Weekly Sugar Wrap for 30 April

The past week has been volatile to say the least. Prices hit their highest level since late February earlier in the week before collapsing back over the next couple of sessions. Tuesday saw the spot month reach just shy of 18 cents culminate a move that has seen prices improve over 300 points since the beginning of April. The main driver of the rally has been the fund buying which has seen their net long position increase considerably recently to probably over 200K lots. The funds appear to have rediscovered their appetite for agricultural commodities having cut their record positions during March. The main fundamental driver is the continuing uncertainty over the prospects for the Brazilian CS cane crop. However, in a similar manner to the rally seen in front of the March expiry prices quickly dropped with the market, currently, some 100 points off the highs. However, unlike the February rally, the spot month premium has not rocketed to a 140 point premium maintaining only a slight premium as we reach the expiry today. The open interest in the May is, likely to, currently, be around 15k lots suggesting a small delivery of between 650k and 750k tonnes probably mainly Brazilian sugars with, possibly, some Mexican sugars.

Brazil’s sugar production for 2021/22 is at the forefront of traders and analysts thoughts at the moment. Unica released their harvest data for the first half of April on Tuesday showing that the cane crush was 15.63 million tonnes producing 624k tonnes of sugar which was 35% lower than the same period last year. It was always expected to be a slow start to the season so it is far too early to be able to make any accurate predictions for total production. 147 mills have started operations by the middle of April some 30 less than same time last April. However, it is likely another 60 mills have now started crushing so the harvest will be getting into top gear by the beginning of May. Further estimates have been released this week which have been higher than the pessimistic view of Wilmar last week who put total sugar production between 31-33 million tonnes. This week Tom McNeill analyst with Greenpool put production at 35 million tonnes with Czarnikow putting total production at 35.6 million tonnes due to higher sugar content in the cane. Both acknowledge the dry weather is having an impact on the cane and neither ruled out lowering expectations later in the season. The other area of concern has been the EU where French beet farmers, and to a lesser extent German beet farmers suffered large losses of planted beet due to unseasonal frosts earlier in the month. There has been no official information regarding replanting as yet although the French government has promised their farmers financial help. Some believe they will replant the majority of the damaged beet but, even if they do the lateness of the replanting will, undoubtable, have an impact on yields.

India continues to crush with most believing they will reach around 31 million tonnes for this season and a similar if not slightly more next season. Their exports have continued to expand with a view that they have probably contracted to sell around 4 million tonnes of their subsidised target of 6 million tonnes. As some have pointed out if prices do push over 18 cents then they may not need subsidies to export at a profit and they certainly have the stocks to do so.

Currently, most analysts are still pencilling a slight surplus for 2021/22 but, obviously, this could quickly be wiped out if Brazilian CS production is, indeed, as poor as some believe. However, unless there is a catastrophe, then Indian exports will probably help fill some of the gaps in supply as they have done this season. Nevertheless, it would seem unlikely prices will collapse to the extent seen after the March expiry when prices dropped 285 points from the February highs. Unless the funds decide to liquidate the majority of their recent buying, which would seem unlikely, then prices could start to stabilise at around or just below current levels. The macro will continue to have an influence on the market but, again, it would seem a collapse in commodity prices would seem unlikely. However, the pandemic is, by no means, under control in many parts of the world so the recent optimism which has seen many commodities hit multi-year highs could subside if a more risk-on attitude is taken.