Sugar Market Report for 27 January

Good morning,

The market tumbled yesterday as geopolitical concerns persisted and some analysts start to pencil in a small surplus for the current season. The market opened 3 points weaker rallied 6 points to put in the highs of the day before stating to drop 16 points from the highs over the next 30 minutes. A slight improvement was then seen as the market quietened. However, as US traders got to their desks prices started to drop again and over the next couple of hours dropped over 30 points virtually filling the chart gap left on the 15^th January just after the MLK holiday. The market then made a marginal recovery but eventually settled at its lowest level for seven sessions. The HK dropped 7 points to end at +30 wile the KN was 3 points weaker at +16. In London the structure held with the HK and KQ just over $1 firmer at +8.70 and +6.20 respectively. This meant the WP also improved with HH WP just over 92.00 while the KK WP ended at 90.00. The main catalyst for the drop yesterday was the macro and the continuing strength of the USD as investors seek to hold safe-haven assets as tensions continue between Russia and the Ukraine. Added to the mix is the growing view that the current 2021/22 season’s supply and demand maybe more balanced than originally predicted.

The analyst CovrigAnalytics reported that they now see a small global surplus in supply of just under 600k tonnes. This after a 2.5 million tonne deficit for 2020/21. They explained that they see higher annual production in India, Thailand, Pakistan and Europe (including Russia and Ukraine). They continue to expect total production in Thailand to be over 10 million tonnes. While it is another two months before the start of the next Brazilian CS harvest analysts are starting to put total cane at above 560 million tonnes compared with around 522 million tonnes for the last harvest.

Sugar beet processing in Russia is nearly completed for 2020/21 crop. As of 24^th January Russia had produced 5.39 million tonnes of sugar which is 430k tonnes more than last season.

This morning the market opened 10 points lower and at the lows of yesterday before improving slightly with support just below the chat gap noted. Prices are, currently, around 3-4 points weaker. The HK is 1 point firmer at +31 while the KN is unchanged at +16. In early London trading HK is unchanged at +8.70 while KQ is a tad firmer at +6.50. The macro is distinctly negative this morning with a sea of red across the board apart from the USD Index which is back at its recent highs at 96.83 and threatening to increase to its highest level since July 2020. The sugar market is looking weak and seems destined to fall further as the macro and fundamentals weigh on prices. The fact the funds have a relatively small net long position may limit the losses in the short term unless they decide to build a net short position which cannot be ruled out. Geopolitical tensions are likely to persist for the time being and no one will try to second guess what might happen next.