Sugar Market Report for 1 February

Good morning,

The market tumbled again yesterday to its lowest level since 11^th January. However, a somewhat remarkable recovery was seen over the last 15 minutes of trading when all the day’s losses were wiped out. The market had opened 10 points firmer before improving another 6 points to register the highs of the day shortly after the opening. Prices then started to ease lower soon dropping into the negative column. Prices continued to remain under pressure with the selling intensifying as 18.10 was broken which quickly saw the 18.00 cents level breached as well. A mild recovery was seen on some light day trader short covering but it was not long before prices slipped again with the lows being reached late in the session. However, a bout of aggressive buying appeared shortly before the settlement period which saw prices gain nearly 40 points in the last 15 minutes of trading including 7 points in post settlement period. The HK also jumped to end at +42 although this maybe slightly false after remaining around unchanged at +34 for most of the session. The late rally saw the HK jump 8 points. The KN also jumped 10 points to0 end at +20 but again the gains were late in the day. In London it was quieter. The HK ended slightly firmer at +9.50 while the KQ finished unchanged at +5.90. The late rally in NY saw London fail to keep up so the WP weakened with HH WP down over $3 at 90.80 and the KK WP at 90.30. The weakness seen for most of yesterday was mainly on the view that production is increasing more than anticipated when the season started. However, with Brazilian ethanol parity around current levels there is not much reason for prices to continue to collapse from here with the Brazilian CS harvest still a few weeks away.

ISMA reported yesterday that total Indian production for the current season is likely to be around 31.45 million tonnes up about 3% from their last estimate of 30.50 million tonnes. They see the increase as a consequence of a jump in production in Maharashtra where its output could rise 10% from last season to a record 11.7 million tonnes. Sugar mills could divert a record 3.4 million tonnes of sugar for ethanol production and export around 6 million tonnes of sugar compared with 7.2 million tonnes last season.

As of the 27^th January the Thai harvest had reached 44.3 million tonnes of cane crushed which is around 20% higher than the same period last year. Total sugar production has reached 4.5 million tonnes about 814k tonnes higher than last season at the same time. The harvest is now approaching half way through with most expecting the total cane crush to be between 85-93 million tonnes and sugar production at just under 10 million tonnes.

The Australian sugar analyst Green Pool reported yesterday that they see a small global deficit in production compared with demand for next 2022/23 season of around 740k tonnes. They still maintain a 2.03 million tonnes deficit for the current season. The strength of sugar prices over the past year has started to encourage farmers to increase cane production although input costs are also increasing. They see consumption increasing by 1.26% to 188.66 million tonnes and dismiss some forecasts that consumption will rise by up to 2.5%.

This morning the market opened 7 points firmer than settlement but 3 points lower than last night’s last print. Currently, prices are 12 points firmer. The HK is 1 point weaker at +41 while the KN is unchanged at +20. In early London trading the HK is slightly weaker valued at +9.50 while the KQ is unchanged at +5.90. This morning the macro is more positive than of late with most commodities trending higher while the USD Index is lower having given back most of the gains of Friday yesterday as traders appear to be slightly less fazed by the situation in Ukraine and Russia. Much of the weakness recently has been because of a growing view that with production edging higher and above previous estimates in several major producers the production deficit for 2021/22 will be negligible or even a small surplus. However, there is still much that can change especially on how the next Brazilian CS cane crop will have recovered after last year’s drought. Therefore, it is likely there will be a dearth of sellers below 18 cents unless more fund selling is unearthed. They have covered a large majority of the net longs and the remaining gross longs are probably in for the long term. While some of the short term funds may play the market from the sell side they are quick to cover when necessary. However, while the downside looks limited there is little reason to expect prices to rally significantly with 19 cents a distant target.