SUGAR IS SHINING IN A VOLATILE COMMODITY WORLD
In the past few months, we have seen a volatile Commodities Market, perhaps a bit more than usual.
We are having to deal with uncertainties on Agri yields, for the grain crops of USA, EU and CIS, due to uncertain rainfall patterns, to say the least. We have also seen an active Hurricane season in North America, higher freight rates and risk of demand disruptions as the virus is still going around, especially in the Far East.
The US Dollar is going sideways. Investors are watching the Fed and its forward policies which may have to deal with higher inflation and a very inflated balance sheet. Will the Dollar finally break the recent narrow range and rally?
Meanwhile, Stock Markets are doing okay with many investors not expecting any short-term disruption or change of policies, which could affect the market in the short-term.
ARE WE IN THE EYE OF A POTENTIAL
ECONOMIC STORM? Time will tell, but in the meantime we are seeing some “disinvestments” for some Agri Commodities, on the short term, with NETT LONGS being reduced, but mostly on Corn and the Soybean Complex.
When it comes to Sugar nr 11 and Sugar nr 5 (Futures) there has been some reduction on NETT LONGS in the past 3 months but not much. Why?
The Brazilian Cane harvest in the Centre-South (CS) has been affected by a prolonged period of low rainfall as well as a couple of frosts in the past few months. Sugar Futures peaked at UScts/lb 20.90 (Oct 21 nr 11) by mid Aug but since then it has slowly retraced. As prices approached UScts/lb 19 and lower, physical off take improved and prices rebounded.
In the short-term, Sugar Futures don’t have any significant volume of producer selling for the front months as most have done what they had to do sometime ago. Consumers on the other hand, have been raising their buying targets and providing a support to the market every so often.
Currently, without Investors (Funds, Specs, Index Funds) or Traders selling Sugar Futures, there is little pressure from Producers for 2021 until mid-2022 positions.
Current crop estimates expect Brazil CS to produce 31 to 33 mln m/t of sugar, down from 38,4 mln m/t. The lower Cane harvest and higher Gasoline prices (up 38% since Oct 2020), keep pushing Ethanol prices higher in the Brazilian Domestic market (up 52% since Oct 20), besides Sugar (up 62% YoY)! Hydrous Ethanol prices are trading at the equivalent of UScts/lb 18 cts and Anhydrous 20 cts basis 96 pol.
18 | ADMISI - The Ghost In The Machine | Q3 Edition 2021
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