FUNDS GET SWEET ON SUGAR


It has been a difficult year for all. The world has been plunged into chaos and uncertainty as the pandemic has spread its deadly tentacles across the globe. All markets crashed lower in March as the size of the problem finally took hold.


There was a general risk-on as investment managers took stock of the situation. The sugar market was no exception. Back in February the non-commercials (the term used to describe managed money in the weekly Commitment of Traders report) were a healthy 120k lots net long of NY sugar. They had built this position in anticipation of a significant drop in global production as India suffered a difficult monsoon and Brazil continued to concentrate on ethanol production that paid better than making sugar from cane. They were poised to increase their purchases and prices looked set to break above 16 cents with a global deficit being predicted for the 2019/20 season. Then the world changed and the funds exited their purchases and built a sold position although not particularly large. In fact, they became side-lined as the world remained in lockdown.


As the year pushed towards its second half the world started to take a more pragmatic view on the pandemic and markets started to gradually recover. The funds started to stir across agricultural contracts including sugar. As prices hit a thirteen year low of just shy of nine cents the funds started to take profits. They continued to recover eventually starting to build a long position at the beginning of June with prices recovering to 11 cents. Over the next couple of months, the funds continued to methodically buy and prices slowly improved another two cents. Since then they have continued to add to their position culminating in reaching over 210k lots by the end of October which seems to be their immediate limit.


Initially, there appeared little reason for the funds’ optimism. Analysts were cutting their deficit expectation on lower global consumption due to the pandemic. Brazil was channelling nearly half of their cane into making sugar. By the end of July their sugar production across the CS was up 48% compared with the same time the previous season aided by a weak currency and collapsing demand for ethanol. The Indian monsoon was progressing well. There were some areas of concern. Thai production looked likely to drop again and the EU beet crop got off to a poor start with dry weather Nevertheless, most saw a growing surplus for the 2020/21 season.


Now in November their bullish stance has paid off with prices recently hitting their highest level since February. The main reason being the silence from India on their export policy. In the past two seasons the Indian government have announced their subsidies to encourage exports shortly before or after the beginning of the season. Most analysts see production of over 31 million tonnes this season. With domestic consumption at 26 million tonnes at best, the need to export, at least five million tonnes, is obvious to stop the internal price collapsing plunging mills into financial turmoil. Lower EU and Russian production due to weather and disease and another sharp drop in Thai output are adding to sentiment.


ANALYSTS WERE CUTTING THEIR DEFICIT EXPECTATION ON LOWER GLOBAL CONSUMPTION DUE TO THE PANDEMIC.


10 | ADMISI - The Ghost In The Machine | Q4 Edition


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