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Weekly: ICE Raw Sugar Secures Support From Thailand's Output Troubles, Aggressive Fund Buying; Upward Price Trend to Continue

9 Aug 2020 7:06 pm
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Mumbai (Commodities Control) - The week ended 7th August managed to settle flat-to-positive with 0.24% gains for NY sugar; just below five-months’ high. The most active contract was, primarily, driven by output concerns in Thailand and massive fund-buying. Last week, Sugar #11 ended with 10% gains.

Sugar prices on Friday posted moderate losses as NY sugar retreated from a 5-month high. A decline in crude oil prices on Friday, along with weakness in the Brazilian real against the dollar, has sparked long liquidation in sugar futures.


Crude oil fell more than 1% Friday, which undercuts ethanol prices and is negative for sugar. A rebound in the dollar stalled the recent run-up in sugar, as well. The Brazilian real on Friday dropped 1.71% to a 3-week low against the dollar. A weaker real encourages export selling by Brazil's sugar producers.


October raw sugar settled down 0.27 cents, or 2.1%, at 12.67 cents per lb, after setting a five-month high of 13.00 cents earlier in the session.

At the start of the week, ICE sugar managed to extend the northward rally from the week ended 31st July, additionally supported by firm crude oil and strong Brazilian Real. However gains were limited on concerns that ample production in Brazil and India will keep sugar supplies plentiful.


By mid-week, the rally in sugar prices came to a halt and closed lower on beneficial rain in Thailand, with forecasts for more rain later this week. On Wednesday, October raw sugar ended 1.88% lower at 12.54 cents per lb, having hit a 4-1/2 month high earlier of 12.96.


However on Thursday, October raw sugar settled up 3.2%, at 12.94 cents per lb, a five-month peak. StoneX said on Thursday that reduced sugar output in Thailand and Europe will push the global 2020/21 sugar market into a deficit of 1.3 MMT.


Czarnikow Group, on July 26, said that it projects that Thailand's 2020/21 sugar production could drop more than 10% y/y to an 11-year low of 7.4 MMT, well below USDA estimates of 12.9 MMT, due to the worst drought in four decades.


Dealers added that diminishing outlooks for production in Mexico along with Thailand and strong demand from Asia may be creating a more supportive fundamental backdrop for the market.


"The rally is prompting some to re-assess sugar's fundamentals. And we think there are a few production issues that are rightly on the radar, not least the increasing likelihood that Thailand's production will again be well below capacity," Commonwealth Bank of Australia analyst Tobin Gorey said in a note.


There’s a dual support to sugar’s bull run due to aggressive fund buying. Managed money increased their net long position in raw sugar on ICE Futures U.S. in the week to August 4 by 28,278 contracts to a net long of 117,261 contracts, up 32% on a weekly basis, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday. The net longs came close to the levels seen for the week ended 21st january 2020. The open interest was registered at 1,172,637 contracts, up 44,890 contracts.


Meanwhile in India, sugar prices have given up all the strength it garnered ahead of the decision to raise the minimum selling price (MSP) of sugar by Rs 2. Prices have dropped 3-4% in major producing states of Uttar Pradesh and Maharashtra during a month’s time.


Although further drop in prices is most unlikely due to ease in lockdown restrictions along with firm global raw sugar prices, that are close to five months’ high. Sugar prices are expected to recover, hereon.


Meanwhile, the United Nations’ Food and Agriculture Organization said on Thursday that global food prices rose for a second consecutive month in July as they continued to recover from a sharp slump driven by the coronavirus.


The rise marks a second monthly rise for food prices and suggests that the worst of the coronavirus’s negative effect on food commodities has abated. Food prices, as measured by the FAO, fell for four consecutive months at the start of the year as food supply was slow to adjust to the pandemic’s sharp hit to demand. Sugar prices rose 1.4% driven by rising energy prices and a drought in Thailand that threatened supply.


Going forward, experts continue to be bullish on NY Sugar.


According to Michael Seery of Seery Futures, “Sugar prices are trading above their 20 and 100 day moving average as the trend is to the upside..the chart structure will improve tremendously in next week's trade therefore the monetary risk will be reduced substantially.”


Support and Resistance for sugar #11 lies at 12.40 cents and 13.14 cents per lb, respectively.


(Commodities Control Bureau)


       
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