THE SUGAR CONUNDRUM


It has been a tumultuous time since Russia advanced into the Ukraine on the 24th February after weeks of speculation on Putin’s intent. Unsurprisingly, the markets have reacted violently to the conflict with energy prices rocketing.


Crude hit its highest level since 2008 with gas, power and coal reaching all-time highs in price. Concerns over supply shocks of wheat has seen prices jump over 60% with other grains moving higher as well. Sugar has also got caught up in the turmoil, although, initially, prices were slow to react. However, as crude prices pushed through the $100 mark, the funds seem to suddenly realise sugar looked cheap. Initially, covering shorts, they soon started to increase longs as a recognition built that higher crude prices means more expensive gasoline and diesel which could translate into more ethanol demand in Brazil which would mean less sugar production as mills divert more cane to ethanol when the 2022/23 season starts in April.


AS CRUDE PRICES PUSHED THROUGH THE $100 MARK, THE FUNDS SEEM TO SUDDENLY REALISE SUGAR LOOKED CHEAP. INITIALLY, COVERING SHORTS, THEY SOON STARTED TO INCREASE LONGS AS A RECOGNITION BUILT THAT HIGHER CRUDE PRICES MEANS MORE EXPENSIVE GASOLINE AND DIESEL WHICH COULD TRANSLATE INTO MORE ETHANOL DEMAND IN BRAZIL...


8 | ADMISI - The Ghost In The Machine | Q1 Edition 2022


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