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Weekly: ICE Sugar Ends Down As Brazilian Real Sinks Below 4/$ Mark

18 Aug 2019 9:29 pm
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MUMBAI (Commoditiescontrol) – Sugar prices on the Intercontinental Exchange ended down last week mainly led by the Brazilian currency’s fall against the US dollar below the 4 real-mark to an over two-month low. The strong spell of rainfall in India helped prices remain subdued.

The most tracked, Sugar no 11 or the October contract ended down 1.9% at 11.64 cents, while the London October white sugar ended down 1.4% to $314.10 a tonne. Volumes in the sugar no 11 dropped to 23,275 compared with 66,255 a week ago. Volumes in Sugar no 5 fell to 2,787 compared with 6,830 a week ago.

Prices started the week on a bearish note as the real weakened beyond the 4-per dollar mark for the first time since May 26 as the US recession fears and financial turmoil in neighbouring country Argentina turned the currency markets volatile.

A weak real typically prompts Brazilian millers to increase their sugar production and avail of the attractive exchange rate for exports.

Prices recovered briefly as the real reversed some of its losses the following day, while crude oil prices too eased. However, by mid-week, sugar slipped yet again as the real tested below the 4 per dollar mark yet again. Adding to the price fall were the weak crude oil prices amid uncertainties of global demand in the wake of the US-China trade rift.

During the week, the real has slipped 1.6%, falling to an over two-month low of 4.05. In fact, on Wednesday, the Brazilian central bank announced it would outright sell dollars in the spot market for the first time in 10 years, marking a change to its regular currency market operations. The central bank said this was in response to the “current market environment”, but not a change in its floating exchange rate policy. The Brazilian central bank said it would sell up to $550 million daily in the spot market along with reverse swaps of the same value from August 21-August 29.

The announcement seemed to stem the real’s fall to some extent and thereby the prices of sugar.

The Indian Meteorological Department’s data showing above-average rainfall in the country for the third straight week also weighed on prices. India received 45% more rainfall than the 50-year average in the week to August 14, taking the overall seasonal rainfall into surplus by 1%.

On Wednesday, Brazilian firm Archer Consultancy raised their 2019-20 sugar production forecast for the centre-south region adding to the bearishness. The agency raised the output forecast for the region by 1.32 million tonnes to 25.5 million tonnes on favourable weather conditions. The region’s ethanol production was lowered by 450 million litres to 29.86 billion litres. The total sugarcane crushing estimate too was hiked to 582 million tonnes from the April estimate of 572 million tonnes.

Despite the real’s partial recovery and the rise in crude oil prices in the latter part of the week, it was not enough to offset the fall in sugar prices during the week.

The latest CFTC data showed that managed money traders’ net short widened to 153,285 positions as on the week ended August 13, adding 12,974 net short positions on week. Open interest for the week stood at 1,189,745, up 69,366 on week.

This week, the Brazilian real could give cues to sugar prices. According to media reports, a number of hedge funds have reversed their bullish positions on the real, indicating chances of a further fall in the real and thereby a decline in sugar prices.

Brazil’s Minister of Economy Paulo Guedes on Thursday said the country was “prepared” for a dollar rise to 4.10-4.20 reals."The government does not fear the US Dollar above R$4 because Brazil has good fundamentals," Guedes said.

A healthy improvement in the rainfall situation in India could also weigh on prices.

The October contract is likely to get some strong support around 11.50-11.57 cent levels.

(By Commoditiescontrol Bureau)

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