Mar 3 / Lívea Coda

A new record for March delivery

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"The volatility observed last week was primarily due to the anticipation of the March contract expiry. After the record high delivery, Brazilian availability is seen as tighter, and production issues in India and Thailand are providing short-term support for sugar prices. This situation could potentially lead to a rebound in the May contract if demand does not wait."

A new record for March delivery

  • UNICA's report showed figures in line with expectations, resulting in no price movement, with the Brazilian Center-South crushing only 245k mt of cane.

  • The volatility observed last week was due to the anticipation of the March contract expiration, with Monday data showing signs of an overbought position. Coupled with a lower energy complex and a stronger dollar, sugar prices reduced 3.8% by Wednesday.

  • The trend continued with a 4.6% reduction on Thursday due to active selling by Brazilian producers, and the March delivery exceeded expectations with 34,385 lots totaling 1.7Mt of sugar delivered at 19.51c/lb, setting a new record.

  • Brazilian availability is seen as tighter after the delivery, and production issues in India and Thailand provide short-term support for sugar prices.

  • As the market waits for the next Center-South crop, prices could still find support, with a potential rebound in the May contract depending on demand.

Last week, UNICA's report presented figures that aligned with both our and market expectations, resulting in no price movement. The Brazilian Center-South crushed only 245k mt of cane, producing a minimal output of 7k mt of sugar and 381 million liters of ethanol, all significantly lower than in 23/24 and consistent with off-season levels. Additionally, as anticipated, UNICA's director, Luciano Rodrigues, emphasized that the higher ethanol production during 24/25 from both cane and corn ensures no risks to domestic availability. This supports the outlook for another max-sugar crop in 25/26 and a bearish medium-term price trend.


Image 1: Center-South Crop Summary

Source: Unica, Hedgepoint

Therefore, the volatility observed last week cannot be attributed to that particular piece of news. Instead, it was a consequence of the March contract expiry anticipation. On Monday, the market was already showing signs of being overbought, suggesting the possibility of price corrections. The same day was marked by an adverse external market. A lower energy complex and a stronger dollar influenced the commodity board, exacerbating sugar’s overbought situation. While Tuesday was relatively neutral in terms of trading, Wednesday saw sugar prices decline through a consolidation pattern, leading it to a 3.8% reduction.

Image 2: Raw Sugar Relative Strength Index Analysis

Source: Refinitiv, Hedgepoint

The trend intensified on Thursday, when news about some Brazilian producers actively selling after prices reached two-month highs contributed to the 4.6% reduction. Analyzing the open interest, it became evident that the March delivery would exceed 1Mt, potentially reaching 1.5Mt. This above-average delivery raised questions about the market’s true tightness level and contributed to a sluggish final session. Ultimately, 34,385 lots were delivered, totaling 1.7Mt, at 19.51c/lb. This volume set a new record, surpassing even the 1.3Mt delivered on March 24.

Image 3: The Dolar Index and the Energy Complex

Source: Refinitiv, Hedgepoint


Shifting focus to May, it is crucial to monitor its initial sessions to better understand market pricing. In our view, with the significant delivery, Brazilian availability got tighter and will be even more as the off-season concludes. Meanwhile, India and Thailand have not met expectations, and their production costs are higher – representing a source of short-term support for the sweetener prices.

While we remain somewhat optimistic about India achieving 30Mt, the fact that its sugar production is currently lagging by 14% compared to last season, reaching only 21.9Mt by February 28th, raises a red flag. If the season ends early, we could be facing a higher deficit in global supply and demand for 24/25. However, trade flows shouldn't be affected as 1Mt has already been allowed.

Image 4: Raw Sugar Delivery (Preliminary Data – ‘000t)

Source: Green Pool, Hedgepoint


Regarding Thailand, although it is on track for a recovery year, it might not be as promising as initially expected. We have revised our expectations down from 11Mt to 10.5Mt due to less-than-ideal weather conditions for crushing. This restricts its export capacity by at least 800kt, leading to a tighter market in the short-term.

Therefore, as the market waits for the beginning of the next Center-South crop, which may start slowly or even face delays, prices could still find support. We might see a rebound in the May contract as tightness settles in, but this trend could be short-lived depending on the demand's willingness to wait.

Indonesia is yet to decide when it will actually import the approved 200kt. Meanwhile, China’s customs hasn't released January’s figures yet, but up until December, its imports dropped by 36% for sugar and 24% if we include syrup and smuggling estimates.

In Summary

The volatility observed last week was primarily due to the anticipation of the March contract expiry. On Monday, the market showed signs of being overbought, influenced by a lower energy complex and a stronger dollar, leading to a 3.8% reduction in sugar prices by Wednesday. The trend continued with a 4.6% reduction on Thursday, driven by active selling from Brazilian producers. After the record high delivery, Brazilian availability is seen as tighter, and production issues in India and Thailand are providing short-term support for sugar prices. This situation could potentially lead to a rebound in the May contract if demand does not wait.

Weekly Report — Sugar

Written by Lívea Coda
livea.coda@hedgepointglobal.com
Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com
www.hedgepointglobal.com

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