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Weekly Sugar Wrap for 11 February 2022

The sugar market has remained under the cosh over the past fortnight although, currently, values are virtually unchanged and in the middle of the range seen over the past 10 sessions. The market has remained beholden to the machinations of the macro for intra-day direction although fundamentals have continued to weigh on prices. The Russian build up of troops along the Ukraine border with Putin’s postering against the West’s threatening rhetoric has not calmed and remains a shadow over global markets at the moment. The funds have continued to cut their long exposure to sugar – the last COT showed they was just net 37k long their smallest position since the middle of June 2020. The fact that some had taken fresh short position possibly contributed to the spike in prices earlier this week when they covered. Their reluctance to hold shorts for too long suggests it is unlikely they will go net short especially as inflation has hit 7.5% in the US and analysts are now talking of seven rate rises by the end of the year. There is also continuing chatter about a commodity super-cycle developing which may now have more validity if embedded inflation grows which causes wage-inflation. The world food index continues to remain near 10 year highs.

Fundamentally, there has been no significant developments in the past couple of weeks. The Indian and Thai harvests continue apace and have both reached around halfway. Both are looking to end with total production rather higher than expected before harvest commenced. India may now reach over 32.5 million tonnes and Thailand just shy of 10.50 million tonnes. India mills have contracted to sell 4.6 million tonnes of sugar of which 3.7 million tonnes has already been dispatched. It is thought a total of 6 million tonnes could be exported during the current season although, currently, prices are well below their raw sugar selling price. Production is also up across the EU (and UK) and Russia where the season has just finished. The big question, as always, is how much sugar will come out of Brazil’s CS later this year. It continues to rain and looks set to remain wet through to the end of February. General consensus is that the cane crop could reach 560 million tonnes. Some believe this could increase if it remains wet through March. The next question will be how the cane is split between sugar and ethanol production. Global energy prices remain high but, unexpectedly, ethanol sales across Brazil fell nearly 30% in the first half of January.

Reuters announced the results of the annual sugar poll earlier this week. These polls tend to be notoriously inaccurate with contributors often predicting just their hopes. It is likely traders and brokers will be hoping the predicted end of year price for raws is mistaken as it is only around 40 points below current levels at 17.80. The 10 contributors see a global production deficit of 1.25 million tonnes for the current 2021/22 season. The 4.6 million tonnes of exported India stocks from previous seasons suggests this deficit will cause few supply problems. For next season, 2022/23, a surplus of 750,000 tonnes is predicted as the good prices over the past year incentivise farmers to grow more cane. For the soon to start Brazilian CS harvest the poll sees 560 million tonnes of cane producing 34.35 million tonnes of sugar. While expected consumption was not covered in the poll the Australian analyst, Green Pool, had said earlier that they saw consumption growing by just 1.26% to 188.66 million tonnes over the coming year. They dismissed other forecast of consumption growth of 2.0 to 2.5% as unlikely.

Today sees the expiry of the London white sugar March-22 contract. Currently, the total delivery looks likely to be around 400-450k tonnes with one receiver. The main origin looks likely to be India as it was against December 21. It is likely most will see the expiry as neutral. At the end of the month will see the March-22 raws contract expire. It is too early to make any set predictions but a huge delivery looks doubtful and, unlike last March expiry when the front spread ballooned to over 100 point premium, no fireworks are expected. Geopolitical concerns aside prices look set to remain range-bound, perhaps 17.50 to 19.00, under pinned by uncertainty over the next Brazilian crop but resistance above on increasing Indian and Thai production. However, prices may well come under pressure if early data from the CS harvest suggests higher than expected sugar production. By then the seasonality trend may have also kicked in as prices tend to weaken during March/April.

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.

© 2021 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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