Weekly Sugar Wrap for 26 March

Sugar prices have continued to weaken this week adding to the losses over the past month. It seems a long time ago since prices reached just shy of 19 cents in front of the March expiry. Over the past five sessions prices have dropped to their lowest level since late December only failing by one point to hit 15 cents yesterday. Probably more significantly, from a fundamental perspective, the front spread has halved from +31 to settle at +14 last night. Undoubtable, the macro has not helped sentiment. Most commodities has stalled or fallen over the week as the USD continues to improve. Yesterday the USD index hit its highest level since the middle of November. However, there also appears to be a growing view that the tightness of physical supply that had the market rocketing higher this time last month is easing. Indian exporters have taken full advantage of higher prices and their Government’s export subsidy to contract to export around 4.5 million tonnes which has plugged supply gaps left by a very poor Thai harvest and the Brazilian off-season. This is against expectation with some analysts suggesting, a month ago, they would struggle to ship anything near their target for the season of 6 million tonnes.

The Indian harvest continues with three-quarters of the cane cut. Sugar production has now exceeded domestic consumption so every tonne now produced is adding to their stocks. Indeed there is some concerns that internal consumption has been hit rather more than expected as the pandemic continues to keep the country in lock-down so their estimated consumption of 26 million tonnes may be running at a lower level currently. There has been some chatter than some mills have approached the Government asking for the export subsidies to be extended to another 2 million tonnes. The chances of this happening would seem to be very slim. Firstly, Indian exporters have benefited from higher prices and concluded some sales at levels that are profitable without the subsidy and, secondly, the Government is unlikely to have the money or inclination to increase. Indeed many are questioning whether the Government will have the ability to subsidies next season which they will, surely, need to do to support internal prices especially as it looks as if production will be, again, over 30 million tonnes. One destination where Indian exports have dropped is to Iran due to their diminished reserves of Rupees. There are negotiation being made to allow payment in other currencies which could add to the Indian export total for the season.

The Brazilian CS 2021/22 harvest official starts at the beginning of April although some 21 mills are already crushing. A Sugaronline Webinar earlier this week discussed the up-coming Brazilian season. The general consensus was that the total cane crush would drop to between 580 and 595 million tonnes with sugar production at around 35.5 million tonnes or more. This compares with the record 38 million tonnes of last season. The sugar/ethanol split is likely to remain around the average of last season at 46/54. The recent drop in ethanol prices in Brazil due to the continuing impact of the pandemic emphasises this view. Of course, once the harvest gets going in earnest a different view may emerge. The earlier dry weather has taken its toll on the cane but to what extent is the big unknown. Currently, the view it that it is relatively minimal. There is also the usual chatter over port congestion as Soybean and sugar exports compete for berths to load. Usually, the two harvest dovetail but this year the situation is likely to be exacerbated by the late soybean harvest and, consequently, a late shipment period. Generally, the soybean shipment period starts in January but due to dry weather the planting and harvesting of the crop was the latest in 10 years and a larger export window is needed. It will cause a logistical nightmare for shippers but whether it has any significant impact on sugar prices remains to be seen.

As mentioned above the macro picture has turned negative recently with talk of commodity super cycles becoming very much quieter. The long road to unlocking the world from the pandemic is proving to be a lot more bumpy than some had expected. The global vaccine roll-out is stuttering in many regions and cases are rising again in Europe while the like of Brazil have not seen any significant relief in months. This means there has been a significant shift in sentiment with a risk-on attitude being taken which has seen the USD improve against expectations and most commodity markets either consolidate or fall. While it is more than likely things will improve uncertainty has come back to haunt the markets. It would seem the funds are taking a more selective attitude to their investments as opposed to their blanket approach of a few months back. At the moment the funds appear to not see any huge opportunities in sugar. This is understandable given Indian sales continue to plug this season’s global deficit while next season a return to a surplus is expected.

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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