Sep 11 / Lívea Coda

Sugar and Ethanol Weekly Report - 2023 09 11

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"Technical indicators point to a volatile momentum – of course, the market has been trading weather for some time now! Although raw sugar prices have seen an increase over the last week, reaching 4-month highs, the movement could be short-lived. As we approach the October expiration date, Brazil appears to have more supply than the international market desires, as sugar continues to be traded at a 30-point discount."

Weather improvements and price corrections

  • The sugar market is going through a volatile phase where any weather news seem to shake traders up. During the past week, raw sugar prices touched a 4-month high of 27 USc/lb, while white sugar followed the trend momentarily breaching the 750 USd/t level.

  • It is fair to expect that the recent surge in prices will be short lived. As we approach October expiry, Brazil seems to have more to offer than the international market desires, with cash premium at a 30-point discount. Besides, the weather has improved in both India and Brazil, adding to a short-term resistance.

  • Spread structure still prices a not-so-tight 2023 Q3 and Northern Hemisphere’s availability shortage from Q4 onwards. Of course, we should keep monitoring the weather, as any changes in the forecast can turmoil the market.

Technical indicators signal that we are riding a volatile momentum – of course, we’ve been trading weather for a while! During the past week, raw sugar prices touched a 4-month high of 27 USc/lb on India’s crop deterioration prospects, while white sugar followed the trend momentarily breaching the 750 USd/t level. Naturally, lower availability expectations are offering support to current and future contracts and boosting the white premium. However, this recent surge in prices could be short-lived, as we approach October’s delivery.

Image 1: Prices are supported by availability restraints

Source: Refinitiv

Despite the rumours, and yes, no exports from India could turn out to be a reality depending on government decision, weather has shown some improvements in the country. Regions such as Uttar Pradesh, Gujarat, and Tamil Nadu haven’t suffered as much as Maharashtra and, recently, the precipitation forecast for September has improved nation-wise. Although market has been reacting to every bad news circulated, prices still don’t reflect a catastrophic failure, and nor should.

Image 2: Precipitation anomaly forecast India for 14-days starting September 8 (%)

Source: Agweather

Not only in India, but Brazilian weather has also improved. Contrary to the Northern Hemisphere, dry weather is more than welcome to boost crushing pace and induce higher sucrose content. Running both the GFS and European precipitation models for the country, we should expect lower-than-average rainfall during September. Therefore, Brazil will keep being the strongest short-term bearish factor. This trend might offer some resistance to new price surges before the expiry, making it possible to offset some of the medium/long-term bullishness considering the front contract.

Image 3: Precipitation anomaly forecast Brazil for 14-days starting September 8 (%)

Source: Agweather

As we approach October’s expiry, one can expect its prices to reduce. High availability from Brazil and low cash premium in Santos could indicate a healthy delivery – of course, if the V/H spread remains offering no incentive to carry. If destinations truly needed the sweetener instantly, cash premiums should be at least pairing up with last year’s 30pts, but sugar is being traded at a 30pts discount. Therefore, the market doesn’t seem so tight during 2023’s third quarter but is expected to be so from the fourth onwards.
Spread structure already price in this logic, and we can expect V/H to drop further. Meanwhile, we should – as said in many previous reports – monitor the weather and try to better assess both India’s shortage and Brazil’s upside.

Image 4: Raw sugar cash premium at Santos (USc/lb)

Source: Refinitiv, hEDGEpoint

In Summary

The sugar market is going through a volatile phase where any weather news seems to shake traders up. While prices suffered a surge during the last week, reaching 4-month highs, its fair to expect this movement to be short lived. As we approach October expiry,
Brazil seems to have more to offer than the international market desires, as cash premium is at a 30pts discount.

Spread structure still price a not so tight 2023’s Q3 and Northern Hemisphere’s availability shortage from Q4 onwards.

Weekly Report — Sugar

Written by Lívea Coda
[email protected]
Reviewed by Thaís Italiani
[email protected]
www.hedgepointglobal.com

Disclaimer

This document has been prepared by hEDGEpoint Global Markets LLC and its affiliates ("HPGM") exclusively for informational and instructional purposes, without the purpose of creating obligations or commitments with third parties, and is not intended to promote an offer, or solicitation of an offer, to sell or buy any securities or investment products. HPGM and its associates expressly disclaim any use of the information contained herein that may result in direct or indirect damage of any kind. If you have any questions that are not resolved in the first instance of contact with the client ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878-8408 (for clients in Brazil only).

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