Sep 25 / Lívea Coda

Sugar and Ethanol Weekly Report - 2023 09 25

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"The bearish player’s only resource, Brazil, will reach its intercrop sooner rather than later and, therefore, the October contract might be the only subject to a bearish force for a while, especially if the El Niño’s active period extends to the Northern Hemisphere’s 24/25 development stage window."

Funds are pushing and the market might just allow it

  • White’s expiry brought to light what the market already knew: higher-quality sugar is somewhat scarce in the international market. Only 122kt were delivered on tape and its price was nearly 250 USd higher than in 2021, when the volume was quite similar, at 124kt.

  • Weather improvements in most parts of India, some rains in Thailand, and a good crushing rhythm expected in Brazilian Center-South weren’t enough to trigger a correction in the raw’s futures, as speculative positioning keeps adding support.

  • Long positioning is seasonally high at 198k lots.

  • The bearish player’s only resource, Brazil, will reach its intercrop sooner rather than later and, therefore, the October contract might be the only subject to a bearish force for a while, especially if the El Niño’s active period extends to the Northern Hemisphere’s 24/25 development stage window.
The week began with the confirmation of a low white sugar delivery. With only 122.7kt, the volume corroborates the availability tightness that struck the international market a while ago and that is expected to linger, especially for the higher-quality sugar. No wonder prices expired at the highest level in, at least, 3 years. Compared to 2021, when the October contract also had a low delivery, at 124kt, the price variation between the two expires was close to 250 USd. The main difference between the two years is that, although 20/21 was also a deficit year marked by major crop failure in Thailand and Europe, India was fine – as were the prospects for the coming season 21/22. This time around, the deficit is indeed expected to linger.

Image 1: White Sugar Deliveries (‘000t)

Source: ICE, hEDGEpoint

As we discussed in our previous report, El Niño’s active period extension to the Northern Hemisphere winter added spice to market’s pessimism regarding the sweetener’s availability. India’s poor prospects and the possibility of no exports being priced in, together with Thailand’s struggle, support both raw and white’s prices. Contrary to raws, however, Brazil can offer little help to the whites market, a trend that contributes to the stability of a high white premium.

Image 2: White Premium USd/t                              

Source: Refinitiv, hEDGEpoint

Image 3: White Sugar Trade Flows ‘000t

Source: Green Pool, hEDGEpoint

Weather improvements in most parts of India, some rains in Thailand, and a good crushing rhythm expected in Center South weren’t enough to trigger a correction in the raw’s future curve. Of course, market is not paying attention to October anymore, as its expiry is approaching rapidly, however, it is important to note that it is the only contract we can expect a bearish force to act upon.

Image 4: Raw Sugar Cash Premium in Santos (USc/lb)

Source: Refinitiv, hEDGEpoint

Prices close to 27USc/lb don’t seem to be getting the demand side excited – Brazilian cash premium is a good parameter to measure its interest – and destinations seem to be cautiously waiting for a correction. Nevertheless, even with the high availability from the country and little action on the physical side, funds are supporting the market. Long positioning is seasonally high and, although we could expect some technical selling after the energy complex corrected a little on Thursday, CFTC speculative positioning rose to 198k lots on the week ending on September 19th .

After the October delivery – which will possibly be the highest volume we will be seeing for a while – the bullish trend has nothing holding it back. Brazilian high availability is a reality, as discussed in the previous report, but it is not unlimited.

Image 5: Speculative Positioning in Raw Sugar (‘000 lots)

Source: CFTC, hEDGEpoint

At some point, we reach Brazilian intercrop and summer, when rains tend to make mills work a little bit harder. During that time, the Northern Hemisphere's absence will be felt. March, therefore, will have every reason to breach the 27 USc/lb resistance level. This bullishness would also reflect on the whites, especially if no Indian exports turn out to be a reality.

In Summary

White’s expiry brought to light what the market already knew: higher-quality sugar is somewhat scarce in the international market.

Weather improvements in most parts of India, some rains in Thailand, and a good crushing rhythm expected in Brazilian Center South weren’t enough to trigger a correction in the raw’s futures, as speculative positioning keeps adding support.

The bearish player’s only resource, Brazil, will reach its intercrop soon before never and, therefore, the October contract might be the only subject to a bearish force for a while, especially if the El Niño active period extends to the Northern Hemisphere’s 24/25 development stage window.

Weekly Report — Sugar

Written by Lívea Coda
[email protected]
Reviewed by Pedro Schicchi
[email protected]
www.hedgepointglobal.com

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