Written Commentary
Good morning,
The market improved again Friday with new contract highs being reached on nearby supply concerns, higher crude prices and a view the Brazilian CS harvest will be delayed by a couple of weeks. The market gapped higher on its opening and continued to improve hitting the day’s highs after around 90 minutes. Prices started to then slowly ease back on light log liquidation. The lows of the day were reached mid-afternoon but the chart gap formed on the opening was never filled (16.62-16.66 basis second month) as prices improved by the close to settle 28-30 point higher on the day and over 140 points higher on the week basis front month. The HK slipped 2 points to settle at +90 as fund buying buoyed the second month although the KN also dropped 1 point to end the week at +66. In London the KQ ended slightly higher at +19.80 while the QV was $1.20 firmer at +15.70. The WP remain very strong which will be appreciated by the refiners with the KK WP ending firmer at 109.00 and the NQ also firmer at 103.80. The market remains very strong as near-by supply concerns continue and the spot month shorts continue to be squeezed. The OI in H-21 dropped around 8k lots to 126,117 lots as of COB Thursday. Another 40k lots trading in H-21 on Friday suggesting the OI is now around 118k lots around the same level as this time last year when just under 1 million tonnes was delivered.
The COT as of the 16th February showed the funds/specs had increased their net long position by 2,792 to 212,076 which was probably in line with expectations with the market improving just 16 points in a shortened reporting week. The non-commercials increased their net longs by 5,068 to 144,719. Since then they have added further and now probably stand at around 170k lots net long. Therefore, they have ample ammunition to increase further. The commercials increased their net short position by 10,189 to 478,759 with both longs and shorts cutting positions which was a consequence of the option expiry and the up-coming H-21 expiry. The Index funds also cut positions but mainly shorts so their net longs position increased by 7,399 to 266,684.
French farmers are likely to cut their beet planted area this season despite the lifting on neonicotinoids pesticide sprays. It is expected they will not expand their planted area for beet and it might fall as much as 10% to a 12 year low of 380,000 hectares in 2021/22. This is some 20k hectares lower than the French Ministry of Agriculture predicted earlier last week. If this view is taken by other producers across the Eu then another small production will be seen.
This morning the market opened 10 points firmer in the front month before swiftly slipping 15 points. Currently, prices are around unchanged. The HK is 4 points firmer at +94 while the KN is unchanged at +66. In early London trading the KQ is firmer at +20.30 while the QV is unchanged at +15.70. The macro is a mixed picture with equities lower but most commodities including crude are firmer although the USD is also slightly firmer. The BRL ended the week slightly improved at 5.38. It would seem unlikely the market will weaken too much at the moment. The bulls are in control and are unlikely to let the spot month drop much although as we get further into the week the volume is likely to become thinner and volatility increase. The funds are likely to remain buyers and any dips will be seen, at the moment, as an opportunity to buy. However, the chart gap down to 16.62 (basis K-21) is likely to be a downside target.
Contact the ADMISI Sugar Desk team:
Howard Jenkins, Kevin Watkins, Steven Trigg
Phone: +44(0) 20 7716 8598
Email: admisi.sugar@admisi.com
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