Mumbai (Commoditiescontrol): ICE raw sugar futures surged this week amid higher crude oil prices, lower Brazil sugar production.
The most active March raw sugar contract settled higher by 0.19 cents at 19.27 cents per lb, while the most active December white sugar contract settled higher $8.5 at $ 509.10 last trading session on Friday.
Dealers said higher gasoline prices in Brazil had helped to support the market this week, potentially increasing the amount of cane used to produce ethanol rather than sugar.
The rally in the energy sector has, however, lost momentum towards the end of the week, dragging sugar prices lower, while Brazil rains continued to improve the outlook for next year which is seen reducing funds' interest.
"Fundamentally, strong rains in Brazil are positive for the country's cane crop and are ultimately bearish on price. This would explain the opening of new shorts as well as the closure of longs," food trader and supply chain services provider Czarnikow said in a note.
As per the CFTC weekly report, ICE raw sugar managed money was 162,889 contracts net long on 26th October; down 15,043 contracts from the previous week. Long side positions decreased by 17,872 contracts, and short side positions witnessed a fall of 2,829 contracts. Trade increased their long side position by 15,890 contracts and short also increased by 6,125 contracts. The open interest for the week was registered at 1,051,847 vs 1,024,918 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.
The market was supported by a diminished outlook for sugar output in Centre-South Brazil with data issued by cane industry group Unica on Tuesday showing production in the region fell 56 percent y/y to 1.146 MMT in the first half of October.
Further advances in Brazilian hydrous prices have pushed the spot ethanol parity above 20.00 again, despite the recent sharp decline in the Brazilian real. This is very bullish for sugar prices.
In addition, 60.9 percent of the total amount of sugar cane was crushed for ethanol in the first half of October, up from 54.7 percent last year and a sign of lower sugar production.
Sugar has underlying support from the recent damage to Brazil's sugar crops from frost and drought.
A potential bullish factor for sugar prices is the emergence of a La Nina weather pattern across the equatorial Pacific.
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
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 Oct 15 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. The world sugar deficit in 2021/22 will widen to a 3.829 MMT deficit from a 1.453 MMT deficit in 2020/21.
There seems to be a limited downside from the current level as current level Indian exports will slow down. Further higher Brazilian hydrous prices can be bullish for the sugar prices. As the global economy is opening gradually after covid lockdown we may see a sharp rise in Sugar demand which could lead to a similar rise in sugar prices. Immediate support and resistance for Sugar #11 lies at 18.90 and 19.88 cents per lb, respectively.
(By Commoditiescontrol Bureau: +91-22-40015505)
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