WHATEVER THE INDIAN GOVERNMENT HAVE OR DO DECIDE IT IS LIKELY TO PUT A CEILING ON PRICES AT LEAST INITIALLY. THIS COULD TRIGGER THE FUNDS TO TAKE THEIR PROFITS.


It is very unlikely the funds were aware of these factors when they started to build their long position back in June. Back then they were short of most other agricultural commodities but have recently built long positions elsewhere. Currently, they are long in virtually all but, it could be argued, for fundamental reasons. Their view that sugar was a buy probably stemmed from the fact that at 9 cents it was, historically cheap (unless you are of my vintage who remembers when 11 cents was the high for several years) and the down- side was limited. They, perhaps, did not believe the fall in consumption argument. After all, sugar is a staple ingredient and the world continues to eat whether in lockdown or not.


Would prices be at current levels if the funds had not bought? Probably unlikely. What it has seen is unprecedented pricing by producers. Some estimate that over 50% has been done for next year with just under 20% for 2022 and even some in 2023. This would certainly not be the case if prices were still languishing at 10 cents and suggests that producers see these prices as a gift from the funds. Some maintain more production will be stimulated. It could also be argued that the rally has taken the pressure off the Indian government from having to decide on what subsidies to give their farmers. Whether this is by design or luck we will never know but the rally has worked well for them.


Whatever the Indian government have or do decide it is likely to put a ceiling on prices at least initially. This could trigger the funds to take their profits. However, the larger funds are likely to be in for the long haul and might want to remain long of commodities in general. Only this week Goldman Sachs and Rabobank suggested that agricultural commodities are a good investment again. Time will tell but, as usual, what the funds do next will determine where sugar prices go next.


Howard Jenkins E: howard.jenkins@admisi.com T: +44(0) 20 7716 8598


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


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