The issue is not what India wants to do, but also what the world needs. Brazil lost production and every kilo not produced is a kilo that will not be exported. Until the end of 2018 that wasn’t a great problem given what the EU was exporting as well other nations.
As we go along, we will have a large drop on EU exports, no exports from Pakistan (at least not for the time being) and a reduced Thai crop. As we know, many nations are carrying slightly more stocks, but most are in India. There is some carry over in Thailand and Australia and that will need to be marketed earlier in 2019.
We are not running out of sugar but the tighter world S and D (small surplus or a small deficit) will stop a stock build up and will bring the market closer to a sensible equilibrium, as much as funds/specs allow it to happen!
As we know, the participation of ‘investors’ in the sugar market, like many other agri commodities, tends to increase or decrease surpluses or deficits. We had a surplus in 2017/18 and we had fund/specs selling it, therefore the market was heavier than normally would be. We started 2018/19 with the expectations of another large surplus (although reduced) and we may end up with no surplus at all, therefore as funds/specs covered their shorts the market returned to a more sensible bearish market!
Are we going to have a bullish market? Will crude start rising again? Will the Brazilian real appreciate again? Will India have a much lower than expected crop? Will the weather be good or bad for cane and beet in 2019?
INDIA HAS BEEN AT THE EPICENTRE OF THE SUGAR WORLD FOR A LONG TIME AND IS EMERGING AS A FAR MORE PROMINENT MEMBER OF THE UNCERTAINTIES TO COME.
We believe that energy prices will sustain current levels within a narrow range, which is not far from where we are now. We hear that Saudi may take some production out of the market and the Iranian sanctions will eventually reduce the flow into the market. We also believe the Brazilian real has upside potential, as we are bullish on the current new Brazilian Government that will bring order to a rich country in natural resources. We also believe the weather will impact some crops, for better or worse, depending on the expected El Nino. We also believe India will disappoint in terms of the coming crop, but we’re not yet sure how bad it will be.
The market tends to give trading opportunities, no matter the direction, with movements on spreads, White Premium, volatility on options, not to mention the outright price. We are seeing an increase in activity by producers and consumers trying to add value to their business by preparing to capture market movements, aiming to add revenue to their business (through derivatives and OTCs). The more prepared one is, the greater the chances are to minimize losses and improve revenue. Being able to withstand the market pressures and avoid dropping the business at a worse time, enables one to survive and prosper.
So, our view remains the same, we should see better levels for producers in the coming months as levels have already improved since September. For consumers, current prices remain attractive and one should not take this for granted. As one great trader used to say, “prepare for the worse and aim for the best, but one needs to understand its limitations”.
Alberto Peixoto E:
albertopeixoto@apcommodities.london T: 07570 714 981
29 | ADMISI - The Ghost In The Machine | November/December 2018
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