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Week Ahead : Crude oil rally, dollar's strength to dictate raw sugar futures

18 Oct 2021 2:01 pm
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Mumbai, 18 Oct (Commoditiescontrol) ICE raw sugar futures closed mixed last week as firmer tone in crude oil supported the sweetener but stronger dollar capped its gain. Crude oil prices continued their upward movement which will be extending supports to the sugar market, however, expectations of higher production estimates may limit upsides. Further, U.S. dollar has gained against major global currencies, which will discourage sugar price rallies.

The most active March raw sugar contract settled 0.49 cents lower at 19.80 cents per lb, while the most active December white sugar contract settled higher $0.3 at $ 520.00 last trading session on Friday.

The sugar market was high amid strength in crude oil prices. However, the gains were restricted after rally in the dollar index to a 1-year high sparked long liquidation and signs of stronger sugar output in Brazil.

A dealer cited reports from the Climate Prediction Center that La Nina conditions have developed and are expected to continue into the winter.

"Brazilian mill groups are certainly watching this after the year they saw this last season. La Nina developing is no guarantee Brazilian cane will suffer, but it could also bring more rain to India and Thailand," he said.

As per the CFTC weekly report, ICE raw sugar managed money was 221,287 contracts net long on 12th October; down 1,222 contracts from the previous week. Long side positions decreased by 2,834 contracts, and short side positions witnessed a fall of 1,612 contracts. Trade increased their long side position by 5,911contracts and short increased by 4,384 contracts. The open interest for the week was registered at
1,064,647 vs 1,051,640 contracts last week.

Bullish Factors

Higher crude oil prices benefit ethanol prices and are bullish for sugar as strength in ethanol prices may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production than sugar production, thus reducing sugar supplies.

A potential bullish factor for sugar prices is the emergence of a La Nina weather pattern across the equatorial Pacific. The US Climate Prediction Center on Thursday said that a La Nina weather pattern appears to have emerged across the equatorial Pacific Ocean and will likely last through at least February, which might lead to extended droughts in South America.

The International Sugar Organization (ISO) on Aug 27 raised its global 2021/22 sugar deficit estimate to -3.83 MMT from a May estimate of -2.65 MMT after frost in July damaged Brazil's sugar crops.

Bearish Factors

Data from Unica on Wednesday showed Brazil Center-South sugar production in the second half of September was 2.32 MMT, higher than the consensus of 2.22 MMT, as millers crushed 35.8 MMT of sugar-cane, above expectations of 34.0 MMT.

Weakness in the Brazilian real against the dollar is bearish for sugar, as it encourages export selling by Brazil's sugar producers.

A bearish factor for sugar is the outlook for robust exports from India, the world's second-largest sugar producer. The Indian Sugar Mills Association said last Friday that it expects India to export 6 MMT of sugar in 2021/22, although that would be down 15 percent y/y from 7.1 MMT in 2020/21.

On Sep 8, the Thailand Sugar Millers Corp forecast Thailand 2021/22 sugar production could climb 44 percent y/y to 11 MMT due to beneficial rain and increased plantings. Thailand is the world's second-largest sugar exporter.

According to the International Sugar Organization (ISO), World sugar production in 2021/22 (Oct/Sep) will climb 0.18 percent y/y to 170.638 MMT from 170.335 MMT in 2020/21.

Immediate support and resistance for Sugar #11 lies at 19.41 and 20.17 cents per lb, respectively.

(By Commoditiescontrol Bureau: +91-22-40015505)

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