Weekly Sugar Wrap for 28 May

Over the past week the sugar market has been trying to consolidate after falling from 18.25 their highest levels since late February. Renewed fund long liquidation took prices down towards 16.50 which was a relief for end users who had become poorly priced. While they have not priced heavily they have released the short term pressure to a certain extent. Prices did improve earlier in the week before immediately reversing the gains on the release of rather more bearish Unica data on the Brazilian CS harvest than expected. Yesterday saw good gains as short covering and fresh buying was seen into a lack of selling. However, the more interesting move was in the NY structure with the NV improving from -15 to -10 last night and to around -6 currently. Does this signal that the spot flat prices will continue to improve? The past two expiries have seen pre-expiry rallies and it maybe that potential receivers are positioning themselves while prices remain relatively weak. On the other hand it could just be a case of the market trying to establish a trading range after dropping nearly 170 points off the highs in the space of nine sessions. It has been noted by some that prices do tend to strengthen during June from a seasonality perspective although the correlation is not that strong.

Fundamentally, probably the biggest influence of prices was the release of the Unica data for the first half of May. It would appear that some had an idea as to the figures well before release as prices were under pressure from the opening. In the event a total crush of 41.06 million tonnes was achieved with 2.376 million tonnes of sugar produced from a split of 46.15/53.85. All were rather better than expectation with cumulative sugar production now only under a million tonnes less than last season’s bumper start to the harvest. Obviously, there are many months to go before season’s end and much will probably change. The data has not triggered any analysts to increase their expectation. The CS region has also seen some rain over the past two weeks which has been very welcome. However, it has been sporadic and patchy in coverage. It may have improved soil moisture where the rains fell and probably limited further damage but not improved production prospects.

The Indian harvest is slowly coming to an end with most mills shutting crushing operations by month end. A total of just under 31 million tonnes should be confirmed when final figures are released. Exports are likely to hit record levels for the season. The government’s six million tonne subsidised target which was set late will be reached even with the late reduction of the subsidy with around 5.8 million tonnes of sales already confirmed. There is also confirmation that some sales have been concluded without subsidies presumably when prices pushed above 18 cents earlier in the month. With concerns over domestic Indian consumption being hit hard by the country’s pandemic lock-down during a period of traditionally high consumption probably means 5-6 million tonnes have been added to stocks this season suggesting that ending stock for the season will be similar to opening stocks back in October last year. Most analysts see next season’s production higher than current season so India will continue to need to export and will need them to be subsidies although perhaps not as generously as in the past.

Currently, most analysts are still pencilling in a small global surplus for 2021/22 at around 2 million tonnes. This could quickly disappear if Brazilian production does drop away later in the season either because the dry weather takes a bigger toil on the crop or ethanol demand and prices rise to a level where it has a material impact on the sugar/ethanol split. There is still a lot of conjecture over consumption. Undoubtable, the longer than expected lock-downs across the world have had an impact and there is no guarantee things will return to normal anytime soon with the likes of Singapore recently going into lock-down again. As mentioned above, India will have stocks built this season to export next season. Therefore, even if a global deficit of 2-3 million tonnes develops Indian exports, similar to the current season, will be available to plug any supply gaps. So, for the time being, it could be fair to assume the market are likely to remain within a wide 150 point range between Brazilian ethanol parity at around 16.50 and Indian non-subsidised sugar at above 18 cents. Ethanol parity could increase and India mills may look for higher prices but, unless, the funds either decide to liquidate their longs or increase to record levels this could be the broad range for the time being. However, in these continuing extraordinary times, traders may be well advised to expect the unexpected.