Sugar Market Report for 8 June

Good morning,

Both markets collapsed yesterday as a combination of bearish factors had the funds liquidating longs taking prices down to settle at their lowest level in NY since the 12^th May. The market gapped lower on its opening which, in itself, was bearish after gapping higher the previous session. An island reversal is generally seen as particularly bearish. The market held within a 14 point range for the rest of the morning failing to fill the opening gap. As US traders got to their desks prices started to slid further and they continued to weaken for the rest of the session eventually breaking below 19.00 cents late in the day and settling just off the lows of the day. The structure weakened as well with the NV dropping 6 points to -24 while the VH lost 5 points to end at -38. In London it was a similar picture with the spot month dropping over 5% from the 5 ½ year high settlement the previous session. The QV collapsed $10.70 to close at +17.90 while the VZ tumbled $5.30 to end at +16.10. Needless to say the WP also dropped back with the VV WP down $8 at 122.00 and the VZ down $3 ending at 105.90. There appeared to be no one piece of news that explains the large drop yesterday although some would argue the previous sessions improvement was hard to justify. Nevertheless, the markets inability to hold after the chart gap that had been formed on the 16^th May was filled was probably the trigger for more aggressive fund selling as they liquidated long bought on the three day rally which saw prices gain 150 in three sessions.

Despite the Indian government’s decree that capped sugar exports for this season at 10 million tonnes it looks as if this may be breached. Adding the total exports up until the end of May and what is expected to be exported in June the 10 million tonne total will be reached. It would appear the Government has granted export permits for another 1 million tonnes although there is some confusion as to whether this will be in addition to the exports already expected in June. There has been some chatter that the strength in London recently had been the covering of Indian hedges for exports that will not be made but this would seem unlikely. As mentioned before cane planting for next harvest are up on the same time last year. A decent monsoon and it could be another monster production as it is now thought total sugar production for the current season will be just over 36 million tonnes.

In Brazil it has been raining across the CS which may have hampered the current harvest but will have been beneficial for the cane to be crushed later in the season and keep moisture levels up at expected levels. The bill to cap the ICMS state tax will be presented to the Senate today with a vote on it possible early next week. If the bill is approved then it will probably allow fuel prices to drop which, in turn, will see ethanol prices drop lowering the ethanol parity level. However, it is by no means certain the bill will even be voted on. State governments are against the bill as it will cut revenue which may lead to delays which may mean a vote never happens. The weakening of the BRL also was seen as negative having dropped to 4.87 yesterday despite the USD weakening.

This morning the French Farm Ministry cut its sugar beet planted area from 399k hectares to 397k hectares. It would appear beet is being substituted for winter barley and rapeseed which offer a better return.

This morning the market opened unchanged this morning before dropping through the lows of yesterday. Currently, prices are 4 points lower. The NV is 1 point firmer at -23 while the VH is unchanged at -38. In early London trading the QV is firmer at +20.00 as is the VZ which is valued around +16.70. While sugar appears to have decoupled from the macro for the time being it is a mixed picture this morning with crude and grains/soya higher while softs are generally lower. The USD Index is slightly higher while the BRL, as mentioned above, ended weaker at 4.87 yesterday. Yesterday’s drop is likely to have set a bearish mood for the time being and prices are likely to remain weak. The funds may have more long liquidation to do along with their rolling of positions from spot month. From a technical perspective yesterday’s island reversal has made the charts look negative and there is not too much support to be seen until below 18.70.