Weekly Sugar Wrap for 7 May

The volatility in sugar has continued over the past week with prices improving again. The NY market rallied nearly a cent from last week’s lows although prices are, currently, some 40 points off the highs. The main driver continues to be the macro and uncertainty over the Brazilian CS sugar production. Soybeans, Corn and Wheat continue to make multi-year highs as does Copper while Crude is trading at the top end of its recent range. The USD remains under pressure which has seen the Brazilian real improve to its best level against the USD since February ending last night at 5.28. The funds have been good buyers across the commodity spectrum including sugar where they have increased their net long position to over 190k lots. The May-21 expiry was quiet with 576,660 tonnes delivered from Brazil and a small parcel from Nicaragua. The main receiver was Louis Dreyfus although the other receiver surprised the market. Little known Chinese owned Honors Commodities took 61k tonnes. Market chatter is that they had unsuccessfully tried to buy sugar from a Brazilian trade house so then decided to take delivery off the exchange. The 10 lot delivery they received from Nicaragua was probably not in their plans. The argument on whether the delivery was bullish or bearish was less vocal than usual with some saying the small delivery suggested limited availability while other argued it pointed to limited demand. Unlike the last expiry when March settled at a whopping 140 point premium the May was around 38 points having improved in very late trading from a 15 point premium. The front months in both NY and London are currently trading at a discount with July/Oct weakening yesterday to a 3 point discount which was a surprise given the strength of the flat price. This perhaps suggests limited nearby demand but improving later in the year if the Brazilian CS harvest deteriorates more than currently expected and consumption improves as the world comes out of lock-down.

The market now awaits Unica’s second half April crush data for Brazil’s CS which should be released early next week. More mills have started operations in the second half of the month after the expected slow start to the harvest. Datagro, the Brazilian analyst, added their views to the increasing diverse estimates for final sugar production of the crop. They see the cane crush dropping to 578 million tonnes but sugar production holding just above 36 million tonnes due to better sugar yields. They went on to say that increasing production next season in India and Thailand and higher yields in EU, despite the French frost damage, will see a 2.4 million tonne global surplus next season. So while Wilmar and Canaplan are seeing a large drop in production to 31-33 million tonnes the majority of other estimates are above 35 million tonnes all with the caveat that they may revise things lower as the crush progresses.

The Indian harvest is coming to an end with production by the end of April at just shy of 30 million tonnes. Therefore, most expect another 1 million tonnes of production before all mills cease crushing. Latest data suggests Indian exports have reached 4.35 million tonnes of their domestic production so another 1.6 million tonnes available to export with the government’s subsidy. However, there has been some chatter that some export deals have been concluded without subsidy which does suggest prices are getting to a level for this to happen. Given it is estimated that current stocks are just below 23 million tonnes they certainly have the ability to export more. Assuming an average monsoon this year production is expected to, again, hit 30 million tonnes if not slightly more. Therefore, a similar amount of exports will be needed next season. Then Indian exporters will be competing with higher exports out of Thailand.

The general buying across commodities which has seen multi-year highs in several contracts continues. The United Nations food index rose for the 11^th consecutive month in April to its highest level since May 2014 with sugar the biggest mover. Much of the strength is other contract is weather related coupled with continuing strong demand from China. Several analysts are suggesting this demand will dampen over the rest of the year. It has already been reported that Chinese sugar imports will drop. Nevertheless, there is a general consensus that consumption and demand will continue to improve in other areas as countries loosen restrictions as vaccine take-up increases. Of course, it is not uniform with India still suffering dreadfully from Covid. Sugar looks likely to remain well supported as Brazilian concerns continue. However, whether prices can be justified over 18 cents from a fundamental basis is questionable especially given the current weakness of the spot months.