Mumbai (Commodities Control) – Sugar #11 ends 2% lower after a volatile trading week during 17th and 21st August. This weakness follows a gainful settlement of 3.4% for the week ended 14th August. Meanwhile, ICE raw sugar prices have upped nearly 10% since 21st July 2020.
Raw sugar futures on ICE closed down on Friday, moving away from a five-month peak above 13 cents a lb touched a week ago, as rains in producing areas in Brazil gave relief for parched cane fields.
It is interesting to note that this price correction is seen amid bulging net longs in managed money. Friday's Commitment of Traders (COT) data showed that managed money boosted their net-long in NY sugar positions by 25, 084 contracts for the week ended Aug 18 to 170,963 contracts, close to six-months’ high. This is the result of simultaneous addition of long positions and reduced shorts.
October raw sugar settled down 0.18 cents, or 1.4%, at 12.83 cents per lb. October white sugar settled down $5.90, or 1.6%, at $370.60 a tonne.
Dealers said widespread rains in cane producing areas in Brazil would likely avoid falling agricultural yields in the tail end of the crop, erasing worries about excessive dryness.
NY sugar spent the major part of the week defending 13 cents level, only to slip below the mark on the last trading session of the week. Barring Wednesday when prices shot up, NY sugar felt the pressure of weak Brazilian Real and crude oil prices along with higher sugar output estimates in Brazil.
NY sugar prices on Wednesday rallied sharply and came close to challenging last Friday's 5-1/2 month high. October raw sugar settled up 0.35 cents, or 2.7%, at 13.24 cents per lb, the highest settlement price since March 5, as fundamentals remain positive.
Bearish Factors
Friday's sharp 1.7% sell-off in crude oil prices and the 0.8% sell-off in the Brazilian real dragged ICE raw sugar prices lower. Lower oil prices encourage Brazil's sugar mills to direct more cane-crushing toward sugar production rather than ethanol production, thus boosting sugar supplies. A weaker real encourages export sales by Brazil's sugar producers.
Sugar prices on Friday saw bearish carry-over from Thursday's hike by Conab in its Brazil sugar output forecast. Brazil's national crop forecasting agency boosted its forecast on Thursday for Brazil's 2020-21 (Apr/Mar) sugar output by 11% to 39.3 million metric tons from May's estimate of 35.3 million MT and 2019-20 production of 29.8 million MT. Conab raised its forecast for Brazil's Center-South 2020-21 sugar output to 35.7 million MT from May's 31.8 million MT. Brazil's sugar mills are expected to divert 46.4% of sugarcane to refined production, up from 34.9% in 2019-20 due to weak ethanol prices and demand.
"The point being made is that sugar prices in the real world are their highest level since 2016, a period of very high sugar prices. And the implication is that this will spur more sugar production in Brazil," Commonwealth Bank of Australia analyst Tobin Gorey said in a note.Mills in Brazil can switch some capacity to producing sugar or biofuel ethanol, depending on relative profitability.Gorey said mills were already producing as much sugar as possible, meaning that little, if any, extra sugar production is likely. Another potential bearish factor for sugar is an extremely long position by commodity funds.
Bullish Factors
However, the market remained underpinned by strong demand from China and crop concerns in Thailand, Russia and the European Union.
It is to be noted that NY sugar prices rallied in the first half of August to a 5-1/2 month high last Friday on bullish factors including strong Chinese sugar import demand and concern that drought conditions will reduce Thailand's sugar crop despite some recent rain.
Strong Chinese demand is bullish for sugar prices after Datagro recently reported that shipments of sugar from Brazil to China, as of August 10, totaled 816,823 MT, representing 31% of Brazil's overall sugar shipments during that period.
For the year through July, Brazil has already exported 1.43 MMT of sugar to China, surpassing the total volume of sugar exported to China in 2019.
Thailand's sugar production is expected to be hurt by drought conditions, although recent rain has partially alleviated the drought conditions. The Thai Sugar Millers Co said some regions of Thailand had received as much as 20% more rainfall so far this year versus last year. Also, the Thai Meteorological Department has forecast above-average rain for Thailand for August and September.
Indian sugar-sector updates - GoI on Wednesday decided to increase the minimum price sugar mills pay to sugarcane growers by Rs 10 to Rs 285 per quintal for the next marketing year starting October 2020. A decision to increase the Fair and Remunerative Price (FRP) of sugarcane for the 2020-21 marketing year (October-September) was taken in the meeting of the Cabinet Committee on Economic Affairs (CCEA).
On Friday, Sugar prices weakened in North Indian states, but remained steady in major markets of the country due to muted demand. There was no significant price change in the sweetener in Western, Southern and Eastern parts of the country. Traders attribute this to thin demand despite festival season.
Indian sugar market awaits a decision on the minimum sales price (MSP) for sugar. Nervousness will prevail in the market until the government decides on the issue.
Support and Resistance for sugar #11 lies at 12.62 cents and 13.14 cents per lb, respectively.
(Commodities Control Bureau)
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