Weekly Sugar Wrap for 19 March

It has not been the most inspiring week in sugar with prices dropping along with trading volumes. The market remains range-bound with an earlier attempt in the week to break out on the upside failing for the fourth time. This triggered a bout of long liquidation which, as is often the case, saw a test of the bottom end of the range which has been partially successful with prices making a new low for the move and settling last night at the lowest level since late January. The macro has turned negative which has not helped sentiment with the funds continuing to be side-lined from adding to their longs. Indeed, they continue to trim their long position. They have now cut just over 77k lots from their largest position of over 210k lots reached back at the end of September. The front spread has also weakened from +70 at the time of H-21 expiry to around +33 currently. This suggests a more fundamental change with another squeeze in the run up to the K-21 expiry seemingly more unlikely. However, there is more than enough time for things to change dramatically.

Fundamentally, things have not changed significantly. We still await the start of the Brazilian CS harvest which promised to be interesting. It continues to rain sporadically across the region and may continue into April to hamper the start of the crush. However, more rain the better for the crop that is recovering from a very dry period. Time will tell on how much the cane has improved but it does seem likely the crush will get off to a slow and perhaps late start. Sugar still offers better margins for the mills compared to ethanol and with around 80% of exports already hedged for the 2021/22 season by mills it would seem likely to sugar/ethanol split will be the same as last season at around 46/54.

India has surprised many by the amount of export contracts they have concluded. According to ISMA they have 4.3 million tonnes sold by the middle of this month. This is a fair accomplishment given the announcement of the export subsidy was delayed. Their total target of 6 million tonnes looks likely to be exceeded by season end aided by the fact that world prices improved above their subsidy price. Some will argue that these exports suggest good demand which, undoubtable, is the case. However, they have successfully plugged the gaps left by the likes of Thailand. These exports have also helped plug the global deficit in production for this season. Indian sugar production hit around 26 million tonnes for the current season by the beginning of this week. As domestic consumption is around this level all further production will be added to the stocks for export. While some mills have closed for the season there were still 12 more mills operating than this time last year. Looking further forward the next Indian harvest looks set to be as big if not bigger than the current season. The government will have the same dilemma regarding granting of subsidies. However, by the end of this year, the Indian economy is going to be weaker again due to the pandemic so we can expect another period of uncertainty regarding whether any subsidies will be given at all.

There has definitely been a more cautious attitude taken by the funds across all commodities recently as the pandemic continues despite vaccine roll outs. The upsurge in cases in Europe recently has given the markets the jitters and suggests the world is, by no means, in control of the virus as yet. While the funds are likely to hold on to their long positions they have built over the past six months they maybe reassessing their exposure in the short term. Perhaps they might take a more pragmatic approach and concentrate on specific markets as opposed to the blanket approach. However, talk of a super commodity cycle developing seems to be waning for the time being.

Contact the ADMISI Sugar Desk team:

Howard Jenkins, Kevin Watkins, and Steven Trigg

Phone: +44(0) 20 7716 8598

Email: admisi.sugar@admisi.com

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