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Weekly: ICE sugar edge higher led by surge in crude oil, Brazilian real

14 May 2022 3:14 pm
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Mumbai, 14 May (Commoditiescontrol): ICE raw sugar futures Friday staged a smart rally, rebounding from the three-week low hit on the previous day, with London sugar surged to a 3-week high, as gains in crude oil prices are expected to prompt Brazil's sugar mills to divert more cane crushing toward ethanol production rather than sugar, thus curbing sugar supplies.

July ICE sugar #11 closed up by 53 cents (2.84 percent) to 19.17 cents, and Aug London white sugar #5 closed up by 14.80 (2.84 percent) $531.70 a tone.

Sugar prices Thursday tumbled to 2-1/2 month lows on weakness in the Brazilian real, which fell to a 2-1/4 month low against the dollar, on Thursday, sparking a sell off in sugar. A weaker real encourages export selling by Brazil's sugar producers, thus increased likelihood of sugar availability globally.

Prices continued to drift this week in line with micro guidance. Lack of fresh information and no significant change to trade opinion kept prices under tight check.

It is typically a positive development to see a market make new lows for the move, followed by a higher close. Both sugar and the Brazilian real did just that on Thursday. Many markets appeared to trade lower in early action followed by noticeable recovery later on. And so, in some sense, one could suggest that macro influences were prominent again on Thursday.

Outlook for bigger global sugar supplies emerged as a big negative for prices. To add that, the Green Pool Commodity Specialists on April 29 shifting its projection for the 2022/23 global sugar market to be in surplus by 1.41 MMT versus a January forecast of a 742,000 MT deficit, played a key role in pushing prices lower.

As per the CFTC weekly report, ICE raw sugar managed money was 209,797 contracts net long on 10th May; down 18,282 contracts from the previous week. Long side positions increased by 8,451 contracts, while short side positions witnessed a decline of 16,533 contracts. The open interest for the week was registered at 936,084 vs 952,414 contracts last week down by 16,330 contracts.

Bearish factor

Some bearish estimates involving Brazil and exports from India have played out negatively and will continue to influence prices lower. Trade experts see 565 million cane and 33-34 million tonnes of sugar from Brazil with Indian export potential likely to provide solutions to any tightness. On the other side, some very qualified participants are forecasting sub 30 mln t sugar from Brazil, tied to more significant changes to the sugar mix near current price levels.

Another bearish factor for sugar was the projection from Conab on April 27 for Brazil 2022/23 sugar production. It expects the latin American country to report 15 percent on year increase in sugar to 40.3 MMT as the crop recovers from the past season's adverse weather. Also, the USDA's FAS on April 22 projected Brazil's 2022/23 sugar production would climb 2.9 percent on year to 36.37 MMT and that 2022/23 Brazil sugar exports would increase by 3.7 percent on year to 26.6 MMT. In the shorter term, however, Unica reported last Thursday that Brazil's 2022/23 Center-South sugar production through April fell 50.6 percent on year to 1.066 MMT.

As regards Brazil, it was more like 547 mln cane with atr just under .140 and a sugar mix just under 40 percent, for 29 mil sugar.

The outlook for larger sugar crop sizes in India and Thailand are also bearish for sugar prices. On April 15, the Indian Sugar Mills Association (ISMA) raised India's 2021/22 sugar production estimate to 35 MMT from 33.3 MMT, up 12.2 percent on year, and said sugar exports would jump to a record 9 MMT. India is the world's second-largest sugar producer.

Meanwhile, the Thailand Office of the Cane & Sugar Board reported on March 22 that Thailand's 2021/22 sugar production from Dec 7-Mar 19 was at 9.6 MMT, and the total Thailand 2021/222 sugar harvest Dec 7-Mar 31 may reach 10 MMT, a 3-year high. As a result, the Thailand Office of the Cane & Sugar Board expects Thailand to export 7 MMT of sugar this (2021/22) marketing year. Thailand is the world's second-largest sugar exporter.

Bullish factor

Sentiment at the Citi ISO Datagro sugar conference in New York was mostly bullish, dealers noted, with chatter that Brazil should favour ethanol output this season over sugar. Both products are produced using sugar cane.

Another update of significance included rumors that China has been buying signficantly more tonnage for Q3 during the past few weeks, than many participants knew about, including transactions made during Sugar Week. Some estimates have climbed to above 1.0-1.2 mil tonnes for that period, recently transacted.

Updates about conditions in the US showed that adverse weather in the major beet areas of Minnesota and North Dakota have set planting well behind schedule. US domestic prices have been highly elevated for some time, despite a TRQ reallocation and a couple of allotment increases for Mexican sugar.

Talk about critical fertilizer needs in India, potentially damaging weather forecasts in Brazil and the potential for much heavier acreage shifting from sugar to beans in Brazil and India were also added to bullish perspectives.

Given the proximity of world sugar prices to Indian export parities and Brazilian ethanol parities, one could suggest that supply elasticity could be at an all-time high this year, in response to higher or lower prices.

Perhaps, the most bearish aspect of the sugar market is the absence of any fundamental bears. Sugar has been in a 300 pt range for the past nine months, between 17.60 & 20.49. If macro conditions deteriorate into a recessionary bear-market environment, further risk reductions and lower energy prices could challenge such perceptions.

Sugar #11 would find support and resistance at 18.83 and 19.35 cents, respectively.

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

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