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Weekly Sugar Wrap for 1 April 2022

Over the past three weeks the Russian/Ukraine conflict continues to grab the world’s attention. In essence there has not been any significant change in the situation with crude prices still at multi-year highs albeit well off the highs reached in early March. The sugar market has remained volatile with prices dropping to just shy of 18.50 as crude saw a long anticipated correction before rallying over 100 points higher this time last week only to collapse following chatter of some progress in peace talks which saw another sell-off in crude. However, the swift and solid bounce has seen sugar prices remain defiantly firm despite crude prices dropping to no more than $5 above their pre-invasion levels and some $35 off the highs.

 

The huge jump in crude prices has meant analysts and traders have focused on the impact that might be seen on Brazil’s CS sugar production for the coming season which, officially, starts today. Higher crude markets inevitably leads to increasing gasoline and diesel prices which, in Brazil, means ethanol become more attractive and, therefore, leads to more cane diverted away from sugar production in favour of ethanol. Needless to say, in reality, the situation is more complicated. The Brazilian President, Jair Bolsonaro, seems obsessively keen for a lid to be kept on fuel prices. Firstly, because of inflation fears which is a phobia of Brazilian governments and because he is to fight a Presidential election later this year. To this end Bolsonaro abruptly replace the CEO of the national oil company, Petrobras earlier this week. The replacement is expected to be more compliant to the President’s wishes that fuel prices do not increase further and, indeed, will be cut as soon as possible. On the face of it this could mean less incentive to increase ethanol production. However, the value of the Brazilian real now has to be added to the equation. Buoyed by rocketing agricultural commodity prices the BRL has reached its strongest level against the USD since March 2020 another reason ethanol production may increase at the expense of sugar. During last season 55% of the cane went to ethanol with 45% to sugar. Whether the new season sees a significant shift in the split remains to be seen. Probably over 75% of the CS sugar production for 2022/23 is already priced. It would need a logic defying price collapse to allow mills to buy back their hedges. The actual CS cane crop appears to have recovered from the drought and frosts of last season. Currently, most analysts see around 560 million tonne cane crop. The harvest is likely to take some time to get into top gear. Mills are keen to allow as much time for the cane to take full advantage of the returns of the rains which continue across the main regions and could be, ironically, another reason for a sluggish start to the crush.

 

The Indian harvest is beginning to wind down but not before producing a record amount of sugar. Most see 34 million tonnes which would be around 7 million tonnes more than domestic demand. Therefore, the market was taken by surprise when it was suggested by Indian government sources that exports maybe restricted to eight million tonnes this season. Given mills have probably contracted to sell around seven million tonnes further sales will be limited. However, it is unlikely exports would have exceeded this level as the next Brazilian season starts. Nevertheless, the Indian government is concerned that unregulated exports could see local prices spike during the festive season which is never a political winner. Currently, unless this year’s monsoon is, unexpectedly, poor another 30 million tonne plus harvest could be seen in 2022/23 even taking into account increasing ethanol production from cane.

 

The Thai harvest is swiftly coming to a finish. As of the 29th March a total of 90.3 million tonnes of cane have been crushed with probably no more than 2 million tonnes left. Total sugar production has reached 9.91 million tonnes so 10 million likely to be achieved which will be nearly 2.5 million tonnes more than the previous season’s miserable total. Looking forward to the 2022/23 season analysts are pencilling in a 100 million tonne crop which could produce 13 million tonnes of sugar.

 

The sugar fraternity await the start of the Brazilian CS harvest with its sugar production looking to be pivotal for the global supply and demand calculation. Obviously, there are other producers who will be important as to whether the 2022/23 season is in surplus or deficit. Analysts will be keen to see total EU beet plantings and how much the conflict will impact on Ukrainian plantings. Over the coming month we have the May expiry both in London and NY. The white sugar spot month has soared to a large premium over raws hitting its highest level since February 2017 earlier this week with the White Premium hitting 130. It is difficult to explain the strength given some trader complain of limited demand but freight issues continue to impact. Raws look well supported and could quickly challenge the recent highs if the macro allows especially as producer pricing might not appear until prices breach 20 cents.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, and Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2022 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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