Sugar Market Report for 26 July

Good morning,

Friday saw sugar prices improve over 50 points after breaking above the resistance which had built above 17.70 aided by growing concerns over the Brazilian CS cane crop which has been hit by frosts and continuing dry conditions. The market had opened 3 points firmer before immediately improving further as the double top of 17.78/79 was breached as was the 18 cent level. Initially, there was enough selling just above 18 cents to hold prices in a narrow trading range for the rest of the morning but come the afternoon prices started to improve further with some light trade and fund buying noted. The market continued to improve hitting their highest level since the 6^th July late in the session but a bout of speculative profit taking took prices away from the highs with the last traded price some 18 points off the highs. The trading volume was better than of late with a total of over 114k lots but it was still pretty miserable considering the flat price move. The VH improved 4 points to -42 while the HK improved 5 points to end at +87. In London the VZ was slightly firmer at -14.10 while the ZH was virtually unchanged at -8.70. This meant the VV WP ended at a weak 57.10 while the HH WP was also a $1 weaker at 70.50. It was somewhat inevitable that the market would break out of the recent range on the up-side as coffee prices have rocketed higher due to frost damage. While the damage to cane has been more limited there is a growing view that the impact of the cold weather on the cane has caused some damage coupled with the months of dry weather. There is little selling above the market from producers so the gains seen on limited volume.

The COT showed that as of the 20^th July the funds/specs had increased their net long position by 4,364 to 197,918 which was probably in line with expectations given the market improve 70 points during the reporting period having previous hit one month lows. The non-commercials were quiet as they increased their net longs by a minimal 634 to 151,159. The commercials were also quiet during the lows trading volumes seen during the reporting period. They cut their net short position by 1,856 to 408,204 but there was little action on either side although there was some light end-user buying noted. The Index funds cut their net longs by 6,220 to 210,286.

The market opened 5 points firmer before improving another 7 points to match the highs of Friday. However, the early buying soon dried up and prices soon slid into the negative column. Currently, they are around 6-7 points lower. The VH is 3 points firmer at -39 while the HK is 4 points firmer at +91. In early London trading the VZ is around unchanged at -14.00 while the ZH is a tad firmer valued around -8.20. The macro is a negative picture this morning but it is unlikely to have too much impact on sugar prices which are reacting to fundamental news for the first time for several weeks. Crude and grans/soya are down as is the USD Index. Sugar looks poised to push higher and is likely to get some impetus from coffee which is also expected to continue to make new highs. The question is how much further can sugar rally. At current levels prices are high enough to interest Indian exporters but whether there is any physical demand at the levels remains to be seen as the spot months in both markets remain at a heavy discount. The funds have been relatively quiet recently. Whether this break higher will trigger some fresh buying is hard to gauge. Nevertheless, the recent high of 18.49 is not too far away and is the next target.