What seems to be holding back the market is the bearish view on the Brazilian Economy and the currency which is trading at 25% lower than back in December. Brazilian elections are encouraging a bearish market view on Brazil. So, Brazil hasn’t really been helping to prop up the market.
The world is a bit stressed with the various “trade wars” like USA vs NAFTA, China and the EU (which will all be solved soon) as well UK/EU and not to mention the OPEC/Russia “pact” on OIL supply. So, overall weaker EM currencies and trade wars are not helping Commodities.
Coming back to Sugar prices, Funds/Specs took a bullish view from October 2015 until October 2016 pushing the market from US cts/lb 10 to 24 cts. Towards the end of 2016 into early 2017, Funds/Specs decided to liquidate longs (on a nett basis) and by May 2017 they started going short. During the past 14 months, Funds/Specs have “played” the Sugar market from the short side, with weekly average Nett Shorts of 100k lots (164k lots short as of 11 September) while Index Funds remain largely long at an average of 216k lots (258k lots as of the 11 September 2018).
We estimate that producers priced in excess of 26 mln m/t in the past year (current and forward contracts) at an average not far from US cts/lb 13,40, basis October, while consumers also priced similar tonnages an estimated average of US cts/lb 12,75. We have seen Funds/Specs buying from producers and selling to consumers and the market seems trapped in the low end of a “sensible” market range, assuming no further market interventions or weather problems.
It is fair to say that most other Commodities are also under pressure as the dry weather this year which spoiled the prospects for some crops in Argentina, Europe and the CIS, wasn’t enough to propel the market to higher levels, given the stronger Dollar, Trade Wars and weaker EM currencies.
FUNDS/SPECS TOOK A BULLISH VIEW FROM OCTOBER 2015 UNTIL OCTOBER 2016 PUSHING THE MARKET FROM US CTS/LB 10 TO 24 CTS.
The Sugar market is trading at historical low levels and below cost of production for Brazil and India to say the least. Cost of production in many other Nations are also well above the current market. Is the market too low? Yes, it is.
Sugar prices under US cts/lb 14/15 is not conducive to investments, husbandry and expansion, therefore, the current market is forcing production to suffer while we still have some consumption growth and prospects for strong Fuel prices and EM currencies to improve, somewhat, in the near future.
Alberto Peixoto E:
albertopeixoto@apcommodities.london T: 07570 714 981
Published September, 2018
27 | ADMISI - The Ghost In The Machine | September/October 2018
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