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Weekly: Speculators Wipe Out Net Longs As ICE Raw Sugar Prices Decline For 4th Week In A Row; Dealers See Near Term Short covering

23 Mar 2020 7:25 am
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(Commodities Control) – Speculators rushed to give up their net long positions in raw sugar futures on ICE Futures in the week to March 17, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

According to the latest CFTC data for the week ended 17th March, the net long for managed money traders’, in Sugar #11, stood at 3590 contracts, down from 67,889 contracts in the previous week. For the week ended 17th March, Speculative traders on the long side cut 73,888 contracts. Meanwhile, Open interest dipped by 43,774 contracts at 12, 72,515 contracts.

For the week-ended 20th March, active contract of sugar #11 lost 6.7%. The declining trend continues for the fourth week. ICE raw sugar prices collapsed over 10% in the past week and 8% for the week ended 6th March.

Raw sugar futures lost 30% of its value from a 2-1/2 year peak of 15.78 cents reached on February 12 to Friday's close of 10.91 cents.

However, sugar prices on Friday pushed higher as rally in the Brazilian Real sparked some fund short-covering in sugar futures. The Brazilian Real rose 2.07% against the dollar Friday as it recovers further from Wednesday's record low of 5.2523 reals/USD. The stronger real discourages export selling by Brazil's sugar producers.

May raw sugar settled up 32 cents at 10.91 cents per lb, having hit its lowest since September 2018 on Thursday. May white sugar gained $6.50 to $344.40 a tonne, having hit its lowest since last November on Thursday.

The week began with raw sugar futures breaching 11 cents mark for the first time in 6 months. Raw sugar futures on ICE fell on Monday weighed partly by a further sharp decline in the crude oil market. May raw sugar lost more than 5% to settle at 11.09 cents per lb after earlier setting a six-month low of 10.95 cents. May white sugar closed down $12.5, or 3.4%, at $342.50 a tonne.

Funds largely liquidated a net long position during the last few days and the market was waiting to see the extent to which they go short.

Weakness in crude oil prices and a related fall in the gasoline price in Brazil have also led to expectations that mills in the South American country might switch to using more cane to make sugar rather than ethanol.

Sugar trader Czarnikow cut their estimate for global sugar consumption this year by nearly 2 million tonnes, saying the coronavirus pandemic will reduce overall sugar use in countries that imposed lockdowns.

On Tuesday, raw sugar futures on ICE hit fresh six-month lows as equities and oil continued to struggle to stabilise after the coronavirus panic caused Wall Street's worst one-day rout since 1987 on Monday. Bearish factors included weakness in the Brazilian real, and concern about sugar demand.

May raw sugar settled down 1.8%, at 10.89 cents per lb, having reached a contract low of 10.85 during the session. May white sugar settled down $4.00, or 1.2%, at $338.50 a tonne, the lowest since late November.

Active Raw sugar contract on ICE sunk to 18 months low on Wednesday, with equities and oil plunging as fears over the coronavirus pandemic eclipsed support measures. May raw sugar settled down 2%, at 10.67 cents per lb, the lowest since September 2018. May white sugar settled down $2.70, or 0.8%, at $335.80 a tonne.

It was reported that Brazil's oil company Petrobras reduced gasoline prices by 12% on Wednesday, a move that squeezes margins for ethanol producers. Broker INTL FCStone sees Brazilian mills boosting cane allocation to sugar and cutting it to ethanol.

NY sugar on Thursday earlier plunged to a 1-1/2 year low on demand concerns and sinking crude prices. However, prices steadied during closing session as May raw sugar edged down 0.08 cents to end at 10.59 cents per lb, having hit its lowest since September 2018 at 10.52.London sugar recovered from a 4-month low and settled higher after crude oil prices rebounded sharply on Thursday and rallied by 24%.

Line-up data from India and Brazil show strong exporting volumes, sugar trader Czarnikow said. Higher offtake linked to household usage was also noted.

The prospect of lower energy prices hurting ethanol sales in Brazil and pushing mills there to shift production massively from the biofuel to sugar is a major factor behind price slump, according to traders and analysts.

Sugar has support from reduced sugar production in India. The India Sugar Trade Association (ISMA) on Tuesday reported that sugar production in India, the world's second-largest sugar producer, dropped sharply by 21% y/y to 21.58 MMT during Oct1-Mar 15.

While Thailand's Office of the Cane and Sugar Board on March 4 reported that Thailand's sugar production from Dec 1 through Mar 2 was down by 21.3% y/y at 8.1 MMT. While, The Thai Sugar Millers Corp forecast, last month, that Thailand's 2019/20 sugar production would drop 35% y/y to 9 MMT from 14 MMT in 2018/19 as dry conditions reduce sugarcane yields.

So far along with fundamentals dragging prices lower, the technical side onslaught has lead to culling of net longs in past few weeks. Dealers thus expect sugar to rise in the short term, given that it is massively oversold, though a sustained rally is unlikely given the macroeconomic uncertainty.

Support and Resistance for Sugar #11 lies at 10.60 cents and 11.34 cents, respectively.

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