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Weekly Sugar Wrap for 11 March 2022

Over the past month the global geo-political situation has changed dramatically with the start of the Russian/Ukrainian conflict. This time last month most observers thought the situation would not escalate. However, on the 24th February things changed and the markets became chaotic and very volatile. Oddly sugar was one of the last markets to react. Prices had remained range-bound for the whole of February stuck in a narrow 65 point range apart from a conflict starting spike that soon corrected. The March contracts in both white and raw sugar expired without any fireworks. 358k tonnes of white sugar were delivered mostly from India to little surprise. The raw expiry saw a record delivery against the March contract of 1.34 million tonnes made up of mainly Brazilian and Centrals sugar. Sucres et Denrees were the sole receiver. While the large delivery probably has to be seen as bearish it was, essentially, just movement of sugar amongst large trade houses. The beginning of the month saw prices start to rally. It would appear fund managers suddenly realised sugar appeared cheap against many other commodities. With crude prices hitting their highest levels since 2008 the likelihood that Brazilian mills would look to adjust their cane mix more to ethanol production became more likely. Prices rallied just shy of 220 points over the next week as the funds bought, initially covering shorts and then adding to their longs, while scared sellers back away as uncertainty haunted the market. Earlier this week a dramatic reversal in the crude price took sugar prices down nearly a cent from the highs. Yesterday saw a swift spike higher as Brazil’s Petrobras announced immediate fuel increases. This had been the news the market had been awaiting and with it in the markets a bout of profit taking took prices back down again.

Brazil’s next harvest has been the main talking point this week but India is probably influencing the market more at the moment. At the beginning of the current harvest most saw total Indian production at around 31 million tonnes. Now the crush is over two-thirds completed estimates are now up to 3 million tonnes higher with some believing the final output will hit 34 million tonnes which will be a record in production and will make India the largest producer in the world for the 2021/22 season. Somewhat ironically, as this news was being digested, India mills were selling more sugar into the international market as prices rallied up to their selling levels. It is thought around 550k tonnes have been sold recently bringing the total sales this season to around 6.5 million tonnes of which 5 million tonnes has been shipped. Indian traders believe a total of 8 million tonnes is not impossible by the end of this season depending on prices.

The Thai harvest is starting to wind down. Earlier estimates of total cane and sugar production now look to have been a bit optimistic. As of the 2nd March 79.36 million tonnes of cane had been crushed producing 8.62 million tonnes of sugar which has already, comfortable, exceeded last season’s total production by just over 1 million tonnes. Total crush is, now, expected to reach 87/88 million tonnes which suggests total sugar production could reach 9.6 million tonnes which would be just over 20% higher than last season’s 10 year low of 7.57 million tonnes. Some had expected total production to be over 10 million tonnes but the increase in India will easily cover the short fall.

With Asian harvests slowly coming to an end all attention turns to Brazil’s CS harvest which, officially, starts in April although it is expected to be a slow start as mills allow as much time as possible for the cane to develop after the prolonged period of dry weather that impacted so greatly on last season’s cane. Good rains have prevailed over the past months with more expected over the next 10 days which have improved the prospects for the next crop although the damage done will take more than one season to cure. At the beginning of the month, there are varying opinions on the cane’s recovery. Most analysts saw a cane crop of just over 560 million tonnes with sugar production around 34.5 million tonnes although some are barely changed from last season’s 32 million tonnes. However, with the recent huge rally in energy prices analysts are now reassessing their sugar/ethanol split while keeping their cane estimates unchanged. The recent Petrobras fuel increases have seen some early guesses seeing 1-2.5 million tonnes of sugar being lost to ethanol but it will be many weeks before a clear picture emerges. There are so many factors which will dictate the split not least the fact that mills have priced about 75% of their sugar production for 2022/23. They will need prices to drop considerable to allow the buying back of these hedges. They could request to ‘wash out’ physical contracts but, probably, unlikely.

Over the next month EU (and UK) sugar beet farmers will be planting their beet seeds. There has been some chatter about whether other cash crops will be planted instead of beet given the huge increase in grain prices especially wheat. While it may have an impact it should be remembered that firstly, farmers will have missed the opportunity to plant winter wheat which is higher yielding that spring sow wheat. Secondly, beet farmers may also have signed supply contracts with processors. Therefore, any significant change in the EU sugar beet planted area might only be seen in 2023. Needless to say the sugar beet regime in Ukraine is likely to be greatly changed this coming season.

It is very uncertain times in which we live. The situation in Ukraine remains very fluid. Commodity markets will remain very volatile with crude continuing to grab the headlines. Recently, sugar has followed crude, somewhat slavishly, on occasions. Whether this continues remains to be seen. The sugar market appears to be well supplied at the moment. A crude and probably naive calculation sees a production deficit for the current season of about 1.5 million tonnes but with, already, around 5 million tonnes of Indian stocks from previous seasons being shipped. Historically, sugar prices often slip lower at the start of the CS harvest. Despite all it could be the same this season?

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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