The past fortnight has seen the sugar markets settle into an ever decreasing trading range with equally diminishing trading volumes. The total range for the last 14 days has been 93 points and only 48 points so far this week. The October 2021 expiry has come and gone with little excitement. Just 225,600 tonnes were delivered all to Louis Dreyfus from Wilmar and Viterra mostly from Paranagua, Brazil with Mexico and Guatemala making up the mix. It was a far cry from the record delivery of over 2.6 million tonnes in October 2020. Given the small tonnage and marked spot month discount it was difficult to see it as anything but bearish. However, the market now has six months until the next expiry which could mean things could become more volatile as the Brazilian 2021/22 harvest comes to an end and the market enters their intra-crop period before the next harvest starts in April.
Fresh fundamental news remains sparse. The Brazilian harvest is entering its final stages. The Unica data for first half of September showed a marked drop in crush and sugar production compared with the same period last season. The cumulative crush reached 431 million tonnes some 6.6% lower compared with last season while sugar has seen an 8% drop to 26.83 million tonnes. One should remember last season total sugar production was the largest ever so comparisons are somewhat immaterial. The cumulative total is for the current season has already surpassed the total for 2018/19 of 26.5 million tonnes for the CS. Analysts are now expecting total production to limp to just over 32 million tonnes. Thought are now turning to the 2022/23 crop. As to be expected expectations differ considerably. StoneX see production reaching 34.2 million tonnes from a total cane crush of 565 million tonnes while Czarnikow see only a marginal improvement to 32.90 million tonnes from a small cane crop of 540 million tonnes. Needless to say, with another 6 months until the next harvest start much can happen. The rain fall across the region will be crucial. Over the past few weeks rains have returned to the region after nearly 18 months of well below average rainfall. Further rains are forecast for, at least, the next ten days but considerably more will be needed to help soil moisture levels to improve. Consistent rains will be needed through until the end of the first quarter next year – with a possible La Nina lurking nothing is certain.
While the Brazilian harvest is coming to an end Indian farmers are gearing up to start their cane harvest. The weather has been distinctly better across India with another average rainfall monsoon – the third in a row. Patchy rainfall in July and August was replaced with good rains in September. This bodes well for the 2022/21 crop as well. Currently, analysts are still seeing around 31 million tonne sugar production. Given ISMA see domestic consumption recovering to around 26.5 million tonnes another 5 million tonne surplus is on the cards. The country exported a record 7.1 million tonnes in 2020/21 after the 5.9 million tonnes the previous season. They see total available sugar at 39.5 million tonnes which includes opening stocks of 8.5 million tonnes. With consumption and exports at 6 million tonnes for 2021/22 this should mean 7 million tonnes of stocks by the end of the season. The amount of cane diverted to ethanol will be important. Currently, ISMA see a production target of 14 billion litres. Whether this can be achieved remains to be seen but the government are making concessions to encourage production.
A production deficit over demand for the new season that started a week ago is almost a given. However, the size is still to be determined. StoneX put it at a minimal 800k tonnes while others see over 2 million tonnes. Assuming this is the case then Indian stocks should be able to plug the deficit gap. However, with no government export subsidy available, Indian exporters will need prices to remain strong. This season they will also have to compete with Thailand for markets especially the likes of Indonesia as their production recovers from the disastrous production last season.
The macro has been volatile to say the least is certain sectors. Crude prices are at three year highs while Nat Gas, Coal and freight rates continue to climb to unprecedented levels. Higher energy prices should be positive for sugar but has not had much impact as prices remain resolutely range-bound. Physical demand has been poor although there has been some signs of the market awakening. The fact the front spread in whites has improved to a premium suggests better sentiment. The funds have been very quiet recently which has concerned some that they are more likely to liquidate further longs than buy afresh. If they view the up-side as limited this may become the case. However, it is likely they will continue to remain long even if reduced.
There is probably good reason for the market being stuck between 19.50 and 20.50. Above Indian selling while below Brazilian ethanol parity is seen. Additionally, a drop to 19 cents and possibly below might stimulate end-users who will soon need to replenish stocks. The market will eventually break out of the range but, as often is the case, it maybe the funds that determine which end.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Kevin Watkins, and Steven Trigg
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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© 2021 ADM Investor Services International Limited.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
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