Sugar Market Report for 10 March

Good morning,

Contrary to our expectations crude prices collapsed yesterday which pulled most other commodities lower including sugar which settled below 19 cents for the first time in a week. The market had opened unchanged before sharply rallying another 20 points to hit the highs of the day. However, prices soon start to drop back as crude stuttered. The market continued to weaken before finding some initial support at around 19.20 and then 19.10. While prices improved for a time they never got back into the plus column and with crude prices collapsing to their lowest level since the beginning of the month prices tumbled further on the close to settle just 4 points off the lows and some 95 points off the highs reached on Monday. The structure took a hit as well with the KN dropping 10 points to settle at +2 its lowest level since 2020. The NV also collapsed by 11 points to settle at -15 and back to near the recent lows. Much of the weakness in the front spread can be attributed to the collapse of the flat price but it also points to the view that the market is well supplied at the moment with India exports increasing recently. In London the KQ also slipped slightly to end at +10.60 and the QV to +6.60. This meant the WP was also weaker with KK WP at 108.50 and VV WP valued at 88.50. The old trading adage that timing is as important as direction was never better illustrated yesterday as crude dropped with Brent, at one point, over 17% lower on the day. The trigger for the sell-off was a growing view that the US banning of Russian crude imports may not have the disastrous impact initially feared as old ‘non-acceptable’ producers are, perhaps, welcomed back (Venezuela and Iran). It also means that Brazilian President Bolsonaro may have bought some time on the thorny issue of increasing gasoline and diesel prices.

Brazilian analyst Datagro reported yesterday that they Brazilian CS production only increasing by less than 1 million tonnes from last season to 33 million tonnes. They cite the fact that the first third of the 2022/23 cane is in worse condition than last year due to climate issues. They did concede that the sugar/ethanol split will only see a marginal drop in the cane allocation to sugar in favour of ethanol from 44.9% to 44.7%. Datagro’s production estimate is very much at the bottom end of analyst’s estimates for the CS. Earlier yesterday Stone X reported they had reduced their global deficit expectations for the current 2021/22 season to 1.1 million tonnes due to higher than previously expected production in India (33.2 million tonnes). They kept their expectations for the next Brazilian CS crop at 34.5 million tonnes from 565 million tonnes of cane.

It is thought that India has signed contracts to export another 550,000 tonnes of sugar in recent day as international sugar prices and a very weak rupee enable mills to make their sugar profitable. Mills have now sold around 6.5 million tonnes of sugar of which 5 million tonnes has already been shipped. It is now thought that total exports could reach 8 million tonnes by the end of the season with no subsidies much to the Government’s relief. These additional exports are one reason for the recent weakness seen in the KN and NV spreads coupled with the impending start to the CS harvest.

This morning the market opened 8 points firmer mainly on the back of improved crude prices. Currently, prices are around 5-6 points firmer in relatively subdued trading.  The KN is 3 points firmer at +13 while the NV is 2 points better at -13. In early London trading the KQ and QV are both firmer at +11.40 and +7.20 respectively. This morning, as mentioned, the macro has seen an improvement after the wholesale collapse yesterday. Crude is about 4% better while most grains/soya are firmer as is the USD index which is clawing back some of the losses yesterday. Sugar will continue to be dominated by the macro but may struggle to improve too much as the market absorbs the fact that India will definitely ship over 6 million tonnes of sugar this season against a global deficit of around 1.5 million tonnes.