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Weekly: ICE raw sugar futures scaled higher amid strength in crude oil, Brazilian real

23 Jan 2022 9:16 pm
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Mumbai (Commoditiescontrol): ICE raw sugar futures scaled higher this week amid strength in crude oil prices and Brazilian real.

The most active March raw sugar contract settled higher by 0.59 cents at 18.90 cents per lb, while the March white sugar contract settled higher $2.8 at $ 505.40 last trading session on Friday.

Dealers said broad-based weakness in financial markets had prompted some investors to take profit after the March contract climbed to a three-week high of 19.29 cents on Thursday.

"After a 5.35 percent jump on the week, the market coming to Friday has taken some profit. The question is, have we seen the high for the near term, or not?" said a U.S.-based broker.

As per the CFTC weekly report, ICE raw sugar managed money was 75,816 contracts net long on 18th January; down 707 contracts from the previous week. Long side positions decreased by 6,789 contracts, and short side positions witnessed a fall of 6,082 contracts. Trade was 97,561 contracts net short; down 546 contracts from the previous week. Long side position increased by 4,500 contracts and short increased by 3,954 contracts. The open interest for the week was registered at 1,035,833 vs 1,044,324 contracts last week.

Bullish Factors

Higher crude prices benefit ethanol prices and may prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.

Strength in the Brazilian real is also bullish for sugar prices as a stronger real discourages export selling from Brazil's sugar producers.

Reduced sugar output in Brazil is bullish for prices after Unica reported on last Wednesday that 2021/22 Center-South sugar production through Dec was 32.029 MMT, down -16.14 percent y/y.

In addition, the sugar content in the sugarcane crushed fell -1.55 y/y to 142.92 kg/ton from 145.17 kg/ton a year earlier.

Weather concerns in Brazil are a major bullish factor for sugar prices, with Brazil having experienced its worst drought in 100 years and as several bouts of frost in Brazil have damaged some sugar cane crops.

Conab, on Nov 23, cut its Brazil 2021/22 sugar production estimate to 33.9 MMT from an Aug forecast of 36.9 MMT, down 17.9 percent y/y. Conab projects Brazil's 2021/22 sugarcane crushing will fall to 525 MMT, down -13 percent y/y and the lowest in 10 years.

The International Sugar Organization (ISO) recently projected a global 2021/22 sugar deficit of -2.55 MMT.

Most fundamental participants continue to believe that additional Indian supply and a max Brazilian sugar mix are needed this year, which is expected to require a move toward 20 cent/lb or above.

Bearish Factors

The Thailand Office of the Cane & Sugar Board reported on last Monday that Thailand 2021/22 sugar production from Dec 7-Jan 6 of 1.9 MMT, up +58 percent y/y. Thailand is the world's second-largest sugar exporter.

Increased sugar production in India is negative for prices after the Indian Sugar Mills Association (ISMA) reported Jan 3 that India's sugar production from Oct 1-Dec 31 rose +4.3 percent y/y to 11.56 MMT.

The Indian Sugar Mills Association (ISMA) said India currently has an opening balance of +8.18 MMT of sugar as of Oct 1 and needs to export about 6 MMT in 2021/22, although that would be 15 percent y/y less than 7.1 MMT in 2020/21.

As per the India Sugar Mills Association, sugar production from India, the world's second-largest sugar producer, will climb +13 percent y/y to 31 MMT in 2020/21 due to a good monsoon season.

According to the International Sugar Organization (ISO), World sugar production in 2021/22 (Oct/Sep) will climb +0.08 percent y/y to 170.47 MMT from 170.335 MMT in 2020/21.

The FOMC (Federal Reserve) policy meeting on Tuesday and Wednesday will be watched closely by traders next week.The Fed is not expected to make any change to monetary policy; however, its comments may give more clarity on how soon the central bank will decide on its first rate hike.Hawkish comments from the Fed may further strengthen the dollar which will be negative for commodities including sugar.

Market is likely to range bound till Fed meeting. Immediate support and resistance for Sugar #11 lies at 18.47 and 19.33 cents per lb, respectively.

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

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