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ICE Raw Sugar Settles Lower on March Expiry; Weak Crude & Lower Real Weigh

27 Feb 2021 7:51 am
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Mumbai Commodities Control - Sugar prices on Friday tumbled to 1-week lows as weakness in crude prices and a slump in the Brazilian real against the dollar sparked long liquidation in sugar futures. Crude oil prices on Friday fell more than 2% weighing on ethanol prices, while the Brazilian real on Friday dropped 1.58% to a 3.5 month low against the dollar.

ICE raw sugar prices fell ahead of the expiry of the March contract. May raw sugar fell 2.3% to 16.45 cents per lb, extending its retreat from the near four-year peak of 17.52 cents set on Tuesday .May white sugar fell by $9.00, or 1.9%, to $459.00 a tonne.

The March contract expired on Friday with deliveries seen by traders at around 17,500 lots, or about 890,000 tonnes, a bit lower than seen for this contract the year before. Wilmar was the sole receiver.

Sugar prices were undercut Thursday when Green Pool Commodity Specialists projected a 2021/22 global sugar surplus estimate of 4.1 MMT, wider than the projected 2020/21 global sugar surplus of 500,000 MT and the largest surplus in 4 years.

Meanwhile, the volume of sugar Brazilian mills have hedged using futures contracts in New York has soared to 80.5% of their expected exports in the 2021/22 season, way ahead of average for this time of the year, according to a report released on Friday.

Archer Consulting, a firm that advises sugar companies on hedging strategies, said mills in Brazil have also advanced on price fixation for the 2022/23 crop, hedging around 25% of their projected exports for that season.

The reason for such a large hedging is rising sugar prices at the exchange and the depreciation of the Brazilian real , which increased mills' gains in local currency.

Archer estimates an average hedging price of 1,619 reais ($290.38) per tonne. Cost of production in Brazil is estimated at around 1,100 reais per tonne (FOB Santos), so although the average hedging is distant from current higher prices, it still gives mills good profit margins.

Support and resistance for Sugar #11 lies at 16.30 and 16.71 cents per lb, respectively.

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